UK inflation, March 2024

UK inflation, March 2024

Workers deliver drinks to a pub in the City of London, Britain, on Tuesday, April 16, 2024.

Bloomberg | Bloomberg | Getty Images

Inflation in the U.K. fell to 3.2% from 3.4% in March, the Office for National Statistics said on Wednesday, but a series of higher-than-expected numbers prompted investors to increase their bets on the timing of the country’s first interest rate cut Bank of England to withdraw .

Economists polled by Reuters had expected a figure of 3.1%.

According to the ONS, food prices provided the greatest downward pressure on the overall rate, while fuels pushed them up.

Core readings, excluding energy, food, alcohol and tobacco, were 4.2%, compared with a forecast of 4.1%. Inflation in the services sector, a key observer of British monetary policy, fell to 6% from 6.1% – again above expectations of both economists and the BOE.

This week investors have observed signs of a slowdown in the UK labor market, with unemployment unexpectedly rising to 4.2% in the period between December and February. Meanwhile, wage growth excluding bonuses fell to 6% in February from 6.1% in January.

BOE Governor Andrew Bailey said on Tuesday he sees “strong evidence” that higher interest rates are helping to slow the rate of price increases, which have cooled from a peak of 11.1% in October 2022. The central bank’s own forecast calls for inflation to briefly fall to its 2% target in the spring before rising slightly again.

But a better-than-expected core reading in March, well above 4%, is likely to increase speculation that inflation is proving more stubborn than recent forecasts suggest, and the timing of the first rate cuts could be pushed back later.

Market prices changed on Wednesday, with the majority of investors now expecting a first cut of 25 basis points in September or November from the current 5.25%, with only about a 25% chance of a rate cut in June.

There is also uncertainty about the path of central banks around the world, given signs of persistent inflationary pressures in the US. Analysts wonder who will be ahead of the Federal Reserve.

“The Direction of the USA”

Camille de Courcel, head of European rates strategy at BNP Paribas, told CNBC’s “Squawk Box Europe” on Wednesday that the latest data showed the U.K. “heading in the U.S. direction,” posing a risk to its previous call for a rate for June represented cut from the BOE.

While the labor market data surprised negatively, the ONS warned that month-on-month figures could be biased due to methodological issues. That means the BOE’s monetary policy committee will focus much more on positive surprises in wage growth and services, de Courcel said.

Some expect inflation to fall significantly next month compared to last year due to the impact of utility prices.

Ruth Gregory, deputy chief UK economist at Capital Economics, expects pressures to fall below the 2% target in April and said in a note on Wednesday that the Bank of England was still committed to a cut in June could decide if inflation falls further in the coming months. But the risk of U.S.-like toughness or inflation fueled by geopolitical tensions in the Middle East is high, she added.

The British pound moved higher against both of them U.S. dollar And Euro Following the announcement, the rate rose 0.3% against the greenback to $1.246 and against the euro by 0.2% to 1.172.

British Finance Minister Jeremy Hunt, who is preparing for a national election this year, said on social media platform X that the inflation data was “great news.”

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2024-04-17 08:27:26