- UK consumer prices rise by 2.3% in annual terms in April
- Investors reduce their bets on a June rate cut
UK inflation fell to 2.3% in April – its lowest level for almost three years – but the decline was smaller than expected, denting hopes of an early interest rate cut. The Consumer Price Index fell to 2.3% last month, down from 3.2% in March, due to easing energy and food costs. The last time the Office for National Statistics (ONS) recorded a decline in inflation was in July 2021.
Core inflation, excluding energy, food, alcohol, and tobacco, dipped to 3.9% in April from 4.2% in March. Electricity and gas prices fell 27% last year, the biggest drop on record, while food prices increased by 2.9% annually, the lowest rise since November 2021. Policymakers will still be concerned about the stickiness of some aspects of inflation, mainly because prices for services grew more than expected in April.
Source: Office for National Statistics
Investors Reduce Bets on June Rate Cut
The Bank of England said earlier this month that it expected inflation to fall "close" to its target level soon. However, the central bank warned that it wanted to see "more evidence" before cutting rates. If inflation continues to fall as expected, August or September appears to be the most likely time for a first cut.
The pound jumped following the data as investors priced the chance of a BoE June rate cut at just 18%, down from 50% on Tuesday. The BoE is concerned that rapid wage growth, which makes up much of the inflation rate in the services sector, could sustain inflationary heat across the economy.
"Today's release was a bit of a blow for the BoE and the prime minister," said Paul Dales, economist at Capital Economics. Inflation was proving "more stubborn than expected, which makes a June rate cut unlikely," he added.
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