Decision Time: The Bank of England Faces a Split Screen Economy

NatWest argues this week’s Bank of England meeting is finely balanced: inflation pressures have revived, but the real economy is losing momentum underneath the surface. 

• UK CPI rose to 3.3% y/y in March, driven mainly by energy and fuel, while core inflation eased to 3.1%.
• Flash PMI rebounded to 52.0, but much of the strength may reflect precautionary stockpiling tied to Middle East disruption.
• Labour markets continue to soften, with vacancies falling and payroll employment weaker.
• Retail sales were strong in March, yet consumer confidence dropped to its weakest since October 2023.

The BoE’s dilemma is familiar: tighten into weakness, or tolerate another inflation pulse. Thursday’s vote may reveal how divided policymakers really are.