UK Inflation Weakens Case for June Rate Cut

Since
then,
inflation
pressure
has
been
robust,
with
the
annual
rate
hitting
a
recent
peak
of
11.1%
in
October
2022.

On
a
monthly
basis,
consumer
prices
rose
0.3%
in
April,
after
they
climbed
0.6%
in
March
from
February.
The
monthly
reading
topped
the
consensus
of
0.2%,
according
to
FXStreet.

The
annual
rate
of
core
consumer
price
growth,
so
excluding
items
such
as
food
and
energy,
cooled
to
3.9%
in
April
from
4.2%
in
March.
The
figure
landed
ahead
of
the
consensus
of
3.9%.

Numbers
from
the
ONS
showed
annual
services
inflation,
a
gauge
on
which
the
BoE
has
been
keeping
a
close
eye,
remained
stubbornly
high
at
5.9%
in
April,
easing
slightly
from
6.0%
in
March.

Bank
of
England
May
Not
Cut
in
June

What
do
today’s
figures
mean
for
the
next
Bank
of
England
interest
rate
meeting?

At
the
May
meeting,
policymakers
indicated
that
an
interest
rate
cut
in
June
is
a
possibility.

Experts
reacted
to
the
latest
inflation
data.

Tomasz
Wieladek,
chief
European
economist
at
T.
Rowe
Price,
says
that
another
interest
rate

rise
can’t
be
ruled
out.

“Although
there
is
some
evidence
services
inflation
is
falling
gradually,
the
data
today
will
likely
prevent
a
cut
in
June.
The
MPC
has
repeatedly
said
services
inflation
will
be
an
important
indicator
in
understanding
if
domestically
generated
inflation
is
coming
down
in
sustainable
manner.
The
MPC
wants
to
cut
rates
based
on
the
forecast
released
in
May,
but
it
is
still
data
dependent.
The
forecast
has
been
revised
upwards
several
times
now
and
the
data
still
surprised
the
MPC.

“For
now,
the
MPC
will
try
to
wait
until
services
inflation
comes
down,
but
if
it
does
not,
the
MPC
may
have
to
hike
again
at
some
point.
The
data
today
clearly
show
markets
were
too
optimistic
about
a
June
cut
and
remain
too
optimistic
about
BoE
cuts
this
year.’

Services
sector
inflation
remains
a
worry,
argues
Neil
Birrell,
chief
investment
officer
at
Premier
Miton
Investors:

“UK
inflation
is
following
the
trend
elsewhere
and
is
proving
to
be
more
resilient
than
hoped.
It
is
not
getting
back
to
target
as
fast
as
the
Bank
of
England
would
like,
which
will
probably
delay
the
first
interest
rate
cut.
The
service
sector
has
proved
to
be
the
sticking
point
and
it
will
remain
the
bank’s
focus
over
the
next
month
or
two,
ahead
of
a
potential
rate
cut
in
the
summer.”

Zara
Nokes,
global
market
analyst
at
J.P.
Morgan
Asset
Management
(JPMAM)
now
thinks
a
June
cut
is
less
likely:

“While
today’s
meaningful
decline
is
welcome
news,
the
Bank
of
England
will
be
disappointed
by
the
0.2%
pt
upside
surprise
in
the
headline
figure.
Although
this
was
mainly
a
result
of
an
upswing
in
motor
fuel
prices,
concerns
will
remain
around
the
stickiness
in
some
underlying
components.
Critically
for
the
policymakers
at
Threadneedle
Street,
services
inflation
–
a
useful
gauge
of
inflation
persistence
–
came
in
a
lot
hotter
than
its
latest
projections.

“Given
the
recent
divergence
in
opinions
across
the
Committee,
the
upside
surprise
in
services
inflation
may
dent
the
Bank’s
confidence
that
entrenched
inflationary
pressures
are
receding.
While
the
Bank
will
still
be
able
to
take
its
foot
off
the
brake
this
summer,
a
June
cut
now
looks
less
likely.
In
our
view
a
cut
in
June
would
be
premature;
if
the
economy
were
slowing
we
would
expect
core
inflation
to
follow
headline
lower,
but
recent
data
has
shown
activity
reaccelerating.”

At
the
May
meeting,
policymakers
indicated
that
an
interest
rate
cut
in
June
is
a
possibility

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