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UK inflation slows less than predicted: Is a summer rate cut now in doubt?

Core inflation excludes energy, food, alcohol, and tobacco
Core inflation excludes energy, food, alcohol, and tobacco Copyright Alastair Grant/Copyright 2023 The AP. All rights reserved
Copyright Alastair Grant/Copyright 2023 The AP. All rights reserved
By Piero Cingari
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UK inflation slowed to 2.3% in April 2024, the lowest since July 2021, down from 3.2% in March, but missed the predicted drop to 2.1%. Core inflation, excluding energy, food, alcohol, and tobacco, rose by 3.9% year-on-year, above expectations.


UK inflation has slowed to its lowest level since July 2021, but the decline in April fell short of economists' expectations, raising questions about the likelihood of an imminent interest rate cut by the Bank of England.

The Consumer Prices Index rose by 2.3% in April 2024 compared to a year before, down from 3.2% in March. However, this missed the predicted drop to 2.1%, according to data released Wednesday by the Office for National Statistics.

The reduction in the annual inflation rate in April 2024 was mainly due to price changes in the housing and household services sector, particularly for gas and electricity. This change was influenced by the lowering of the Office of Gas and Electricity Markets (Ofgem) energy price cap in April 2024.

Service industry prices stayed higher

Small, partially offsetting upward contributions came from the restaurants, hotels, and miscellaneous goods and services sectors.

On a monthly basis, headline inflation increased by 0.3% in April 2024, a slowdown from the 0.6% rise seen in March 2024 but slightly above the expected 0.2% increase. The largest downward contributions to the monthly change came from falling gas and electricity prices, while motor fuel prices, which rose this year compared to a decline last year, provided the largest partially offsetting upward contribution.

Core inflation, which excludes energy, food, alcohol, and tobacco, rose by 3.9% year-on-year in April 2024, down from 4.2% in March but above the 3.6% predicted by economists. The outcome marks the lowest annual core inflation rate since October 2021.

On a monthly basis, core inflation advanced at a 0.9% pace, accelerating from the 0.6% witnessed in March and above the expected 0.7%. This marks the highest monthly core inflation rate since April 2023.

The Office for National Statistics also reported on producer inflation, showing a 1.6% decline in April 2024 compared to a year earlier for the headline index, which was below the expected 1.2% drop. This marks the 11th consecutive month of negative annual rates, though it is the highest since May 2023. The largest downward contributions came from the inputs of chemicals and fuel, with fuel prices falling by 13.4% in the year to April 2024, the lowest rate since April 2010.

However, on a monthly basis, producer prices rose by 0.6%, up from 0.2% in March and above the expected 0.4%. This represents the highest monthly producer inflation rate since August 2023.

Market Reactions

Following the release of the inflation data, sterling rose, with the GBP/USD exchange rate up 0.3% to 1.2750 at 08:20 Central European Time, reaching its highest level in more than two months. In the bond market, short-term gilt yields increased slightly, with the 2-year yield up by 2 basis points to 4.32%, while the 10-year yield remained stable at 4.14%.

These market movements suggest that investors are slightly adjusting their expectations regarding a potential Bank of England rate cut this summer. Prior to the inflation data release, August was seen as the most likely month for the first BoE rate cut. Overall, the market was pricing in 50 basis points of BoE rate cuts by the end of the year.

The International Monetary Fund (IMF) also noted this week that it anticipates a further 100 basis points of BoE rate cuts in 2025.

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