Pound climbs as UK inflation jumps to 3.5% in April
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The news: UK inflation rose more than expected in April as higher utility bills and tax increases came into effect.
The numbers: Data from the UK’s Office for National Statistics saw inflation rise to a 15 month high of 3.5% in April, up from 2.6% one month earlier. The numbers came in higher than the 3.3% forecast by Reuters analysts and well ahead of figures the month prior.
Services inflation accelerated to 5.4% from 4.7%, while core inflation (which strips out energy and food), climbed to 3.8%, the highest since April last year.
The pound reached its strongest level since February 2022, rising as much as 0.6% to USD1.3469 on Wednesday, later falling back to USD1.341.
The context: Traders scaled back bets on the Bank of England scheduling more cuts on the inflation data, pricing in just one quarter-point rate cut by this time next year, compared with two before the data.
Services inflation, which came in ahead of the BoE’s 5% forecast at 5.4%, is watched closely by rate-setters for signals that underlying price pressures are emerging.
Earlier this week, BoE chief economist Huw Pill warned that the central bank was cutting rates too rapidly, arguing that policymakers should have held levels steady given sticky inflation.
What they said: Suren Thiru, economics director at the ICAEW told Bloomberg that the figures “probably rule out a June rate cut” and “means an August policy loosening is far from a done deal.”
James Smith, an economist at ING, told the FT that the numbers put “the final nail in the coffin of a Bank of England rate cut in June”.
The sources: Office for National Statistics, FT, Bloomberg
