Resilience of activity won’t stop inflation falling

The resilience of the April activity data and apparent stabilisation in housing have raised hopes that a recession may yet be avoided this year. That said, forward-looking indicators suggest that the huge rise in interest rates and tightening of bank lending standards will soon take a bigger toll on consumption and business investment. The wider evidence also still suggests that a sharper fall in inflation lies ahead. As a result, although we are becoming a bit less confident that interest rates will be cut again later this year, there is still more than enough evidence to support a pause in the Fed’s tightening cycle.