British inflation is falling less than expected, dashing hopes for a rate cut in June

Inflation in Britain fell less than expected in April and a key key measure barely fell, prompting investors to hedge their bets on a rate cut next month, boosting embattled Prime Minister Rishi Sunak ahead of this year’s election could have given.

Consumer prices rose 2.3 percent year-on-year last month, a sharp decline from a 3.2 percent increase in March and the lowest level since July 2021, when prices were 2.0 percent, the Office for National said Statistics.

But the Bank of England – which has an inflation target of 2 percent – and economists polled by Reuters had forecast a bigger drop to 2.1 percent.

Services inflation – a key gauge of domestically generated price pressures for the BoE – was much higher than expected, while petrol prices also rose.

Sterling rose after the data and investors put the chance of a BoE rate cut in June at just 18 percent, down from 50 percent on Tuesday.

Economists had expected a sharper fall in inflation after a 12 percent drop in regulated household energy rates that came into effect last month.

“While inflation continues to fall sharply, this report will be a disappointment for the Bank of England and for investors looking for a rate cut in June,” said Luke Bartholomew, senior economist at asset manager Abrdn.

“In particular, the strength of core inflation and services inflation, both of which were much stronger than expected, will make it more difficult for the Bank to have confidence that underlying inflationary pressures will cool sufficiently.” Services inflation fell to 5.9 percent from 6.0 percent in March.

The BoE forecasts and the Reuters poll pointed to a 5.5 percent increase.

Core inflation, which includes goods but not energy, food and tobacco, also reflected continued price pressures, with the annual rate only falling to 3.9 percent from 4.2 percent in March. The Reuters poll had predicted a 3.6 percent increase.


Recent labor market data has provided mixed news on price pressures, with private sector wage growth, excluding bonuses, declining only marginally in the three months to March.

The BoE is concerned that rapid wage growth, which makes up a large part of inflation in the services sector, could perpetuate inflation across the economy.

Sunak, who is struggling to bring voters back to his Conservative Party ahead of national elections expected later this year, has tried to take credit for the fall in inflation.

“Today marks an important moment for the economy, with inflation returning to normal,” he said in a statement.

Wednesday’s data shows Britain has a lower inflation rate than the United States, Canada, France and Germany.

Japan has not yet reported inflation data for April. Inflation in Italy is 0.9 percent.

Yet Britain ranks poorly among Western European countries for its record inflation since 2020, with consumer prices rising by more than 22 percent in that period – with only the Netherlands, Austria and Germany faring as poorly.

Separate ONS data delivered a further setback for Sunak and Chancellor of the Exchequer Jeremy Hunt on Wednesday, showing government borrowing was higher than expected in April, raising questions about their ability to deliver tax cuts to voters before the election.

(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

First print: May 22, 2024 | 2:33 PM IST