UK inflation pressure stays hot, dashing hopes for June rate cut
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[May 22, 2024] By
Andy Bruce and Suban Abdulla
LONDON (Reuters) -Inflation in Britain eased less than expected and a
key core measure of prices barely dropped, prompting investors to pull
bets on a Bank of England rate cut next month which could have boosted
embattled Prime Minister Rishi Sunak before an election.
The consumer price index (CPI) rose by 2.3% in the 12 months to April,
down sharply from March's 3.2% increase and its lowest since July 2021,
the Office for National Statistics said.
But the BoE and economists polled by Reuters had forecast a bigger drop
to 2.1%, just above the central bank's 2% target, after a big cut to
household energy tariffs in April.
Services inflation - a gauge of domestic price pressure for the BoE and
which is also a problem in other European countries - was much higher
than expected, and petrol prices rose.
Sterling jumped and investors slashed the chance of a BoE rate cut in
June to just 18%, down sharply from 50% on Tuesday.
"This is only one month’s data, but it is enough of a surprise to
suggest that the inflation process is not tracking as the BoE had
expected," Allan Monks, chief UK economist at JP Morgan, said.
"There is still another labor market and CPI report to come before the
June meeting, but it is difficult for us to see what that could
realistically do to leave most members feeling confident about cutting
in June specifically."
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Services inflation inched down to 5.9% from 6.0% in March. The BoE's
forecasts and the Reuters poll had pointed to a reading of 5.5%.
Analysts at RBC Capital said the overshoot in services inflation did not
appear to be driven by one-off factors, suggesting further stickiness in
prices ahead.
"Certainly this morning takes June off the table," Cathal Kennedy,
senior UK economist at RBC Capital Markets, said.
"We’ve been saying for some time that we thought services inflation
would be a lot harder to get down than perhaps some other people out
there thought, particularly with the backdrop of the UK labor market
which has loosened but is still very, very tight."
Core inflation, which includes goods but not energy, food and tobacco,
also reflected persistent price pressures, with the annual rate falling
only to 3.9% from 4.2% in March. The Reuters poll had forecast a reading
of 3.6%.
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![](../images/052224PIX/busine91.jpg)
A customer shops inside a Sainsbury's supermarket, in Richmond, West
London, Britain February 21, 2024. REUTERS/Isabel Infantes/files
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PRICE PRESSURES
Sunak, who is struggling to woo voters back to his Conservative
Party ahead of national elections expected later this year, focused
on the fall in headline inflation.
"Today marks a major moment for the economy, with inflation back to
normal," he said in a statement.
But the opposition Labor Party - far ahead of Sunak's Conservatives
in the opinion polls - said voters were still under pressure from
their finances.
"Prices in the shops have soared, mortgage bills have risen and
taxes are at a 70-year high," Labor's finance spokeswoman Rachel
Reeves said.
Wednesday's data means Britain has a lower rate of inflation than
the United States, Canada, France and Germany. Japan is yet to
report April inflation data. Italy's inflation rate is 0.9%.
Still, Britain ranks poorly among Western European countries for its
inflation record since 2020, with consumer prices up by more than
22% over that time frame - with only the Netherlands, Austria and
Germany faring as badly.
Headline inflation's swift fall from a high of 11.1% in October 2022
now appears to have run its course.
The BoE has forecast the CPI to rise again later this year to end
2024 at around 2.6%.
Recent labor market data has shown private sector regular wage
growth eased only marginally in the three months to March, keeping
the BoE on alert about inflationary heat in the economy.
Separate ONS data on Wednesday dealt a further setback to Sunak and
finance minister Jeremy Hunt, showing public borrowing in April was
higher than expected, which raising questions about their ability to
deliver tax cuts to voters before the election.
(Additional reporting by David Milliken; Graphic by Sumanta Sen;
Editing by Christina Fincher and Hugh Lawson)
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