UK Inflation Fall Increases Rate Cut Talk

But
a
slowdown
to
3.1%
was
expected,
according
to
FXStreet
cited
consensus,
however. 

The
ONS
said
food
price
growth
slowed
in
March,
key
to
the
rate
of
inflation
easing.

“Prices
for
food
and
non-alcoholic
beverages
rose
by
4.0%
in
the
year
to
March
2024,
down
from
5.0%
to
February.
The
March
figure
is
the
lowest
annual
rate
since
November
2021,”
the
ONS
said.

Consumer
prices
rose
0.6%
in
March
from
February.
They
had
risen
at
the
same
pace
in
February
from
January.
Prices
had
fallen
0.6%
in
January.

The
annual
core
rate
of
inflation,
so
excluding
energy,
food,
alcohol
and
tobacco,
faded
to
4.2%
in
March
from
4.5%
in
February.
An
ease
to
4.1%
was
expected,
however,
according
to
FXStreet.

The
slowdown
in
March
takes
the
annual
rate
of
consumer
price
inflation
closer
to
the
Bank
of
England’s
2%
target.
The
next
BoE
interest
rate
decision
is
on
May
9.

UK
Inflation
Falls
–
Expert
Reaction

Zara
Nokes,
global
market
analyst
at
J.P.
Morgan
Asset
Management
(JPMAM):

UK
inflation
came
in
stickier
than
expected
today,
news
that
the
Bank
of
England
was
not
hoping
to
hear.
Part
of
this
upside
surprise
came
from
a
rise
in
the
price
of
motor
fuels,
driven
by
OPEC+
supply
cuts
and
elevated
geopolitical
tensions
in
the
Middle
East.
More
concerning
for
the
Bank,
however,
is
the
stickiness
we
continue
to
see
in
wage
data
and
services
inflation,
pointing
to
signs
of
deeper
inflation
persistence.
The
10%
increase
in
the
National
Living
Wage
introduced
on
1
April
may
lead
to
a
broader
firming
in
wage
growth
across
the
economy
and
will
be
a
key
watch
item
for
the
Bank
over
the
next
few
months.
While
the
Bank
should
feel
able
to
take
its
foot
off
the
brake
this
summer
given
considerable
progress
has
been
made
on
inflation
at
the
headline
level,
if
these
signs
of
deeper
persistence
continue,
the
pace
of
further
rate
cuts
may
be
slow
and
the
magnitude
limited.

Tomasz
Wieladek,
chief
European
economist
at
T.
Rowe
Price

These
numbers
are
not
easy
to
interpret,
as
a
result
of
the
early
timing
of
Easter
this
year.
Nevertheless,
even
accounting
for
Easter
effects,
it
suggests
underlying
domestically
generated
inflation
in
the
UK
is
significantly
stronger
than
expected.

Together
with
the
rising
momentum
in
wage
inflation,
the
sticky
services
inflation
numbers
raise
the
risk
the
UK
inflation
battle
is
far
from
over
and
perhaps
not
yet
won.
The
MPC
will
be
worried
about
this
scenario,
and
I
believe
this
strong
reading
will
make
the
MPC
cautious
about
cutting
early
in
the
summer.
Indeed,
given
these
strong
domestic
inflationary
pressures
in
both
wages
and
services,
the
MPC
will
now
likely
wait
until
late
summer
to
get
the
required
confidence
to
cut
rates.

However,
there
is
another
risk
that
is
not
yet
spoken
about
in
the
UK
monetary
policy
debate.
If
services
inflation
and
wages
continue
to
remain
persistently
at
these
high
levels,
the
risk
the
Bank
of
England
will
have
to
hike
this
year
is
rising.
After
all,
the
Bank
of
England
is
data-dependent.
If
the
data
continue
to
indicate
policy
is
not
tight
enough
to
bring
inflation
back
to
target,
the
MPC
may
have
to
tighten
policy
further.

Rob
Clarry,
investment
strategist
at
wealth
manager
Evelyn
Partners

Despite
softer
domestic
conditions,
the
Bank’s
monetary
policy
committee
will
be
wary
about
cutting
in
the
face
of
higher
US
interest
rates.
As
a
smaller
but
open
economy,
the
UK
is
exposed
broader
global
economic
forces,
and
this
has
been
on
display
in
recent
weeks
as
US
bonds
yields
have
risen
amidst
sticky
inflation,
which
has
placed
upward
pressure
on
UK
government
bond
yields.

Cutting
interest
rates
in
this
environment
would
likely
lead
to
sterling
deprecation,
which
would,
in
turn,
lead
to
higher
import
prices
and
put
upward
pressure
on
UK
inflation.
As
we
enter
the
summer
months,
the
Bank
will
continue
to
face
a
difficult
balancing
act
between
growth
on
one
side
and
inflation
on
the
other.

Hilary
Blandy,
fixed
income,
portfolio
manager,
Jupiter
Asset
Management

Today’s
CPI
release
increases
our
conviction
that
inflation
in
the
UK
is
on
a
downward
trend.
Although
services
inflation
was
slightly
higher
than
expected,
the
overall
headline
rate
of
inflation
was
lower.
Whilst
February
data
showed
a
slight
improvement
in
GDP,
we
do
not
think
that
growth
will
be
strong
enough
to
prevent
inflation
from
continuing
to
fall
and
we
expect
the
Bank
of
England
to
start
cutting
rates
this
year.
In
stark
contrast,
growth
in
the
US
has
been
healthy
and
there
are
signs
that
progress
on
inflation
is
stalling.
We
expect
that
US
monetary
policy
may
start
to
diverge
from
the
UK,
where
rate
cuts
seem
more
likely. 

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