Workers deliver drinks to a bar in London, United Kingdom, on Tuesday, April 16, 2024.
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UK inflation fell to 3.2% from 3.4% in March, the Office for National Statistics said on Wednesday, but a set of higher-than-expected figures prompted investors to back off bets on the timing of the Bank of England's first interest rate cut. .
Economists polled by Reuters had expected a reading of 3.1%.
The Office for National Statistics said food prices were the biggest drag on the headline rate, while motor fuels pushed it higher.
The core figure, excluding energy, food, alcohol and tobacco, came in at 4.2%, compared to expectations of 4.1%. Services inflation, a key monitor for UK monetary policymakers, fell from 6.1% to 6% – again above economists and the Bank of England's expectations.
This week, investors have been watching for signs of a slowing UK labor market, with unemployment unexpectedly rising to 4.2% between December and February. Meanwhile, wage growth excluding bonuses fell from 6.1% in January to 6% in February.
Bank of England Governor Andrew Bailey said on Tuesday he sees “strong evidence” that higher interest rates are taming the rate of price rise, which has slowed from a peak of 11.1% in October 2022. The central bank's own forecast is for inflation to decline. It “briefly dipped” to its 2% target in the spring before rising slightly.
But a higher-than-expected March core reading above 4% is likely to heighten speculation that inflation is proving more stable than recent forecasts suggested, and the timing of the first interest rate cuts could move further.
Market rates changed on Wednesday, with the majority of investors now seeing an initial 25 basis point cut in September or November from the current rate of 5.25%, with only a 25% chance of a June cut.
Uncertainty has also been raised about the path of central banks around the world given signs of continued inflationary pressures in the United States, with analysts wondering who will get ahead of the Fed.
“American trend”
Camille de Courcel, head of European interest rates strategy at BNP Paribas, said on Wednesday on CNBC's “Squawk Box Europe” that the latest data showed the UK was “going in the direction of the US” and represented a risk to its previous interest rate call. in June. Pieces of the Bank of England.
While the employment data surprised on the downside, the Office for National Statistics warned that its monthly figures may be distorted by methodological issues. This means the Bank of England's monetary policy committee will focus more on upward surprises on wage and services growth, De Courcel said.
Some expect a sharp decline in inflation in next month's reading due to the annual impact of utility prices.
Ruth Gregory, deputy chief UK economist at Capital Economics, expects the reading to fall below the 2% target in April, and said in a note on Wednesday that the Bank of England may still opt for a June cut, if inflation continues to fall in the coming months. She added that the risks of stability in the American way or inflation fueled by geopolitical tensions in the Middle East are high.
the British pound Move up for both U.S. dollar And euro Following the announcement, trading was 0.3% higher against the dollar at $1.246 and 0.2% stronger against the euro at 1.172.
British Finance Minister Jeremy Hunt, who is preparing to hold a national election this year, said on social media platform X that the inflation data was “welcome news.”
