Expectations for an interest rate cut in the UK in June have been lifted
After inflation in the UK decreased less than expected, investors lowered their expectations for the Bank of England (BoE) to cut interest rates in June.
Inflation in the UK fell less than expected last month, partly due to ongoing price pressures in restaurants.
The UK Office for National Statistics (ONS) announced on Wednesday that the Consumer Price Index fell from 3.2 percent to 2.3 percent in April compared to the previous month. Although this rate was the lowest since the summer of 2021 and close to the Bank of England’s (BoE) 2 percent target, it was above economists’ expectations.
While the decline in gas and electricity prices made the biggest downward contribution to inflation, core inflation, which excludes energy and food prices, was 3.9 percent on an annual basis. Core inflation was measured as 4.2 percent on an annual basis in March. Services sector inflation in the UK was 5.9 percent on an annual basis in April. Service sector inflation was recorded as 6 percent in March.
Investors withdrew the possibility of an interest rate cut yesterday, almost eliminating the possibility of a rate cut that was valid in June. Sterling rose 0.3 percent after the announcement, as investors expected the BoE might be less reluctant to move quickly to ease borrowing costs, which are the highest in 16 years. Sterling also gained value against the euro, reaching its strongest level in the last two months.
“Falling inflation is approaching the Bank of England’s target but may not be enough to effect an early rate cut. This may still not be enough to persuade more cautious MPC members to commit to a rate cut in June,” said Yael Selfin, chief UK economist at KPMG. said.