UK Inflation: What to Expect from April’s Data

Core
inflation,
which
excludes
volatile
food
and
energy
prices,
is
forecast
to
fall
to
3.7%,
from
4.2%
in
March.

CPI
hit
11.1%
in
October
2022
and
has
fallen
back
sharply
since.
While
energy
prices
have
eased,
there
are
still
concerns
over
the
price
of
food.

In
a
recent
report,

think
tank
Resolution
Foundation
says
that
10
years
of
inflation
was
effectively
squeezed
into
three
years,
forcing
consumers
to
curtail
spending.

James
Smith,
research
director
at
the
Resolution
Foundation,
said:
“Next
week
headline
inflation
should
finally
return
to
normal
levels,
marking
the
end
of
the
UK’s
biggest
inflation
surge
in
more
than
four
decades.

“The
sheer
scale
of
this
near
three-year
inflation
shock
has
reshaped
the
economy
and
public
finances,
and
changed
what
people
do
with
their
money.

“The
crisis
has
made
us
poorer,
with
the
sharp
rise
in
the
cost
of
essentials
hitting
lower-income
families
hardest.
It
has
also
turned
us
from
a
nation
of
spenders
to
a
nation
of
savers.” 

While
CPI
fell
to
3.2%
in
March,
it
is
expected
to
fall
in
the
coming
months
towards
the
2%
target,
and
even undershoot that,
a
prospect
that
seemed
unlikely
at
the
start
of
the
year.
But
CPI
is
then
expected
to
rise
again
as
2024
progresses,
posing
a
dilemma
for
the
Bank
of
England.
Still,
policymakers
are
keen
to
stress
that
one
interest
rate
cut
means
that
monetary
policy
is
still
restrictive
–
remember
that
the
UK’s
key
interest
rate
has
gone
from
0.1%
in
December
2021
to
5.25%
in
August
2023.

When
Will
UK
Interest
Rates
Fall?

Money
markets
assign
a
roughly
60%
probability
to
the
Bank
of
England
cutting
interest
rates
in
June.
But
the
Bank
is
keen
to
stress
that
the
decision
is
still
“data
dependent”,
with
this
week’s
inflation
numbers
key.
UK
employment
and
wage
data
for
March
was
stronger
than
expected.

The
most
recent
Bank
of
England
meeting
on
May
9
was, as
expected,
a
“no
change”
meeting,
with
interest
rates
held
at
5.25%.
That
said,
there
were
obvious
changes since
the
March
meeting –
one
more
member
of
the
9-strong
monetary
policy
committee
had
voted
for
a
cut.
While
the
ratio
of
“no
change”
to
“cut”
votes
is
7-2,
more
members
are
likely
to
join
the
cohort
in
favour
of
a
reduction
in
the
coming
months.

“CPI
inflation
is
expected
to
return
to
close
to
the
2%
target
in
the
near
term,
but
to
increase
slightly
in
the
second
half
of
this
year,
to
around
2½%,
owing
to
the
unwinding
of
energy-related
base
effects,”
it
said
in
the
statement
accompanying
the
May
2024
decision. 

“There
continue
to
be
upside
risks
to
the
near-term
inflation
outlook
from
geopolitical
factors,
although
developments
in
the
Middle
East
have
had
a
limited
impact
on
oil
prices
so
far.

“Conditioned
on
market
interest
rates
and
reflecting
a
margin
of
slack
in
the
economy,
CPI
inflation
is
projected
to
be
1.9%
in
two
years’
time
and
1.6%
in
three
years.”

Article
written
by
James
Gard,
with
charts
by
Sunniva
Kolostyak

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