While Rishi Sunak’s government trumpeted Wednesday’s steep drop in headline inflation, the detail of the report made for uncomfortable reading within the Bank of England. 

The drop in the overall rate for April to close to the BoE’s 2 per cent target had been widely expected, given a 12 per cent cut in the regulated energy price cap. But the attention of Monetary Policy Committee members was firmly on underlying components of the consumer price index — and in particular on services inflation. 

This gauge is seen by the BoE as the critical indicator of how strong domestic price pressures are as the global shocks that drove up import prices fade. Senior officials have signalled that if services inflation retreats in line with forecasts they should be in a position to cut rates this summer.