UK inflation stronger than expected in March
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The news: UK inflation cooled less than expected in March, stoking fears that the Bank of England could push back rate cuts.
The numbers: Data from the Office for National Statistics saw consumer prices rise 3.2% in the 12 months to March, down from 3.4% in February. While it was the lowest rate since September 2021, the results came in above the 3.1% that both the BoE and economists had forecast. On a monthly basis, CPI rose by 0.6%, compared with a rise of 0.8% in March 2023.
The context: The largest downward contribution to the monthly change in CPI annual rates came from food, with prices rising by less than a year ago, while the largest, partially offsetting, upward contribution came from motor fuels, with prices rising this year but falling a year ago.
While UK inflation is trending in the right direction, it is unlikely that the BoE will begin easing the country’s interest rates which are still at their highest in 16 years, until more concrete indications of cooling inflation are achieved.
On Tuesday, US Fed chair Jerome Powell warned that the US central bank may keep rates higher for longer than anticipated on the back of surprise inflation data last week. Analysts had earlier pencilled in the first rate cut in June, with two more cuts by the end of 2024. But with recent data showing US economic resilience, the first cut is now expected in September and the odds of a second cut are dwindling.
The sources: UK Office for National Statistics CPI data, Capital Brief
