Food price rises are slowing but rate cut decision still several months away if figures remain where they are.
UK consumer prices index (CPI) inflation slowed less than expected to 3.2% in March, raising the prospect that a rate cut will take longer than predicted.
Although the March figure is the smallest monthly inflation rise for two-and-a-half years, it is still higher than the 3.1% analysts estimated.
The discrepancy points to the persistent nature of inflation in areas such as the service sector, where CPI inflation stood at 6% compared with the expected 5.8%. This partially offset the huge drop in food inflation, which stood at 4% in March, compared with 19.2% at the same point last year.
Economists and analysts at providers suggested the higher-than-expected numbers would make it hard for the Bank of England to cut rates.
‘This print is unlikely to persuade Bank of England policymakers, who just a couple of months ago were voting for further hikes, that the time is now right to start to cut,’ said Danni Hewson, head of financial analysis at AJ Bell. ‘[Bank governor] Andrew Bailey might be making positive noises about the pieces of the economic puzzle falling into place for a change in policy, but markets are far from convinced.
‘Looking at the numbers after the inflation print was released, expectation of a June cut has fallen back significantly and more than 50% now think even August will be too soon.’
Andrew Oxlade, investment director at Fidelity International, pointed out that until inflation drops to the 2% target set by the Bank, quick rate cuts would be unlikely and that predictions made earlier in the year have already proven to be wrong.
‘All the time the figure hovers so far above the target of 2%, policymakers will find it hard to justify cutting rates,’ he said. ‘The shift in rate expectations reflects this. In January, markets had expected six rate cuts in 2024 and that the first would have happened by now. Predictions today point to only two cuts, from 5.25% to 4.75%, with the first not arriving until autumn.’
Charles Walmsley (CityWire)