Service pressure on inflation in the UK
In the UK, consumer prices in April declined more slowly than market expectations due to the rigidity in the services group.
Inflation in the UK fell less than expected in April, raising questions about the Bank of England’s (BOE) easing cycle.
The consumer price index in the country increased by 2.3 percent in April compared to the same period of the previous year. Annual inflation was recorded as 3.2 percent in March.
The expectation of economists participating in the Bloomberg survey was that the annual increase in April would be 2.1 percent.
On a monthly basis, it was observed that prices increased by 0.3 percent. The expectation for this data was 0.1 percent. In March, monthly inflation was 0.6 percent.
Core inflation indicators also pointed out a realization above expectations. In April, annual core inflation in the UK exceeded the expectation of 3.6 percent at 3.9 percent.
While inflation is currently at its lowest level since the summer of 2021, data that price pressures remain is likely to make BOE Governor Andrew Bailey and his colleagues more reluctant to ease 16-year-high borrowing costs.
The decline in April appeared to be driven by a mechanism designed to protect consumers from sharp movements in natural gas and electricity costs. April was seen as a critical month as annual increases were implemented in this month for many bills such as mobile phone contracts.
Bailey said on Tuesday that he expected a “fairly large fall” in April inflation, which would be “much closer to target than it was before”.
Although Prime Minister Rishi Sunak made reducing inflation one of his key objectives last year, the easing of price pressures has not led to an improvement in the ruling Conservative Party’s position in the polls. The latest polls showed Labor leading by around 20 points.
The BOE has signaled that it could cut interest rates this summer if price pressures cool as expected.