UK April Inflation Fell Close to Target, but Less than Expected, Sustaining BoE Uncertainty

CPI Sustains BoE Unceertainty

UK households have been troubled by very high cost of living, as consumer prices peaked at 11.1% y/y in October of 2022 and the highest level in four decades. A lot of progress has been made since then and today's data showed a substantial deceleration. Headline CPI eased to 2.3% y/y in April, from double-digits around a year ago, marking the lowest level in nearly two years.

The Bank of England started raising rates at the end of 2021 to combat sky-high inflation and its efforts are bearing fruit, as CPI has now come very close to the 2% target. Given this moderation, along with the massive amount of tightening since then, economic weakness and other considerations, policymakers have not hiked rates since last August and are now looking to start lowering them.

There is great speculation around the timing of the pivot, which could come as early as June. After the BoE's latest decision this month, Governor Bailey pointed to less restrictive stance ahead, but did not provide clarity around June, saying that a cut then is "neither ruled out nor a fait accompli". [1]

Trade the News: View our Economic Calendar

Today's CPI report does not help clear the uncertainty either. The significant moderation will be welcomed by the central bank, but the print was higher than expected and does not strengthen the case for a June cut. There have been upside surprises before and today's print points to a bumpy disinflation path, warranting a cautious approach by the Bank of England.

Policymakers believe inflation will fall to the 2% target this quarter, but expect it to pick up again after that and not fall below this threshold before another two years [2]. At the same time, wages remain elevated and the economy exited a recession, easing the urgency to remove momentary restriction.

Contrary to the BoE's murky outlook, its European counterpart looks ready to lower rates next month. The US Fed on the other hand has adopted a cautious stance due to inflation persistence and markets don't see a cut before autumn, so the BoE is still likely to pivot earlier.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 22 May 2024 https://www.youtube.com/watch

2

Retrieved 17 Jun 2024 https://www.bankofengland.co.uk/monetary-policy-report/2024/may-2024

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.