- ORIGINAL NEWS
UK inflation eases less than expected to 3.2% in March, sparking concerns of U.S.-style stickiness
- SUMMARY
The United Kingdom’s inflation has shown signs of easing but remains higher than predicted, at 3.2% for March, marginally above the estimate of 3.1%.
The underlying inflation, excluding volatile items like energy and food, stands at 4.2%, also exceeding projections.
While food prices contributed to a modest decline in the overall inflation rate, motor fuels offset this trend, pushing it slightly higher.
Core inflation, which excludes essential items, remains a concern, having dropped from 6.1% to 6%, but still above expectations.
Service inflation, closely watched by policymakers, also declined marginally.
The higher-than-anticipated core inflation raises concerns that inflation may be more persistent than previously anticipated.
This has led investors to speculate that the first interest rate cut from the Bank of England may be delayed.
Market projections now indicate that a rate cut is more likely in September or November rather than June.
The path of interest rates in the UK and globally remains uncertain due to ongoing inflationary pressures observed in the US.
The latest data suggests that the UK may be experiencing a similar trend to the US, posing a risk to expectations of a June rate cut by the Bank of England.
Labor data showed unexpected weakness, but methodological issues may have skewed the results.
Wage growth has also moderated, giving the central bank more room to maneuver.
Some analysts predict a sharp decline in inflation in the following month due to the impact of energy prices, suggesting the possibility of a June rate cut if this trend continues.
Despite the easing of inflation, geopolitical tensions and inflation trends in the US could pose risks and prolong high inflation in the UK.
Financial markets responded positively to the news, with the British pound appreciating against the US dollar and euro following the announcement.
- NEWS SENTIMENT CHECK
- Overall sentiment:
neutral
Positive
“Inflation in the U.K. eased to 3.2% in March… slightly higher than the 3.1% forecast from economists”
“The British pound moved higher against both the U.S. dollar and euro following the announcement”
“Food prices provided the biggest downward drag on the headline rate”
“BOE Governor Andrew Bailey on Tuesday said he saw “strong evidence” that higher interest rates were working to tame the rate of price rises”
“Services inflation, a key watcher for U.K. monetary policymakers, declined from 6.1% to 6% — again above the expectations of both economists and the BOE”
“The British pound moved higher against both the U.S. dollar and euro following the announcement”
“Some expect a sharp fall in inflation in next month’s reading due to the year-on-year impact of utility prices”
Negative
“Economists polled by Reuters had expected a reading of 3.1%.”
“BOE Governor Andrew Bailey on Tuesday said he saw “strong evidence” that higher interest rates were working to tame the rate of price rises”
“BOE Governor Andrew Bailey on Tuesday said he saw “strong evidence” that higher interest rates were working to tame the rate of price rises”
“But a higher-than-expected March core print firmly above 4% is likely to increase speculation that inflation is proving stickier than recent forecasts have suggested”
“Inflation in the U.K. eased to 3.2% from 3.4% in March… but a set of higher-than-expected figures spurred investors to push back bets on the timing of the first Bank of England rate cut”
“Market pricing shifted on Wednesday, with a majority of investors now seeing a first cut of 25 basis points in September or November from the current rate of 5.25%, with only around a 25% likelihood of a June trim”
“Uncertainty has also been raised over the path of central banks around the world given signs of continued inflationary pressures in the U.S.”
“But risks of U.S.-style stickiness or inflation fueled by geopolitical tensions in the Middle East are high”