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LONDON – Britain’s inflation rate fell to 2.3 percent in April, stronger than expected, the Office for National Statistics said on Wednesday, prompting traders to back away from bets that the Bank of England will cut interest rates in June.
The headline figure was down from 3.2% in March. The April print report shows inflation has fallen below 3% for the first time since July 2021, bringing it closer to reaching the Bank of England’s 2% target.
But economists polled by Reuters had expected a sharper fall to 2.1 percent.
Services inflation (an important indicator that the BOE focuses on because it reflects the dominance of the service sector in the UK economy and domestic price increases) fell only slightly from 6% to 5.9%. This was lower than the 5.5% forecast by a Reuters poll and the BOE.
Core inflation, which excludes energy, food, alcohol and tobacco, fell to 3.9% in April from 4.2% in March.
A dramatic decline in headline inflation was widely expected as energy prices fell year-on-year. Investors will focus on core and services inflation after Bank of England policymakers said they intend to cut interest rates over the summer, but stressed the timing would depend on the latest data.
Following the news, money markets lowered the probability of a June rate cut to just 15 percent from 50 percent earlier in the day. The probability of an August rate cut is now seen as 40 percent, down from 70 percent.
Production cuts in June ‘unlikely’
Suren Tiloo, economics director at the Institute of Chartered Accountants in England and Wales, said both the core and the service were “disappointing”.
“A rate cut in June is unlikely as concerns about persistent inflationary pressures remain. However, these numbers encourage more rate setters to vote in favor of policy easing, with summer rate cuts still unlikely. This may signal that it is possible,” Till said in the memo.
European Central Bank policymakers continue to signal that a big shock will be needed to prevent a rate cut in June, leaving the European Central Bank as the next major central bank likely to start cutting rates. Become. Meanwhile, members of the U.S. Federal Reserve have taken a much more hawkish tone in recent weeks, pushing market expectations for a U.S. rate cut until September at the earliest.
Paul Dales, chief UK economist at Capital Economics, said the latest inflation figures made it less likely that the Bank of England would cut interest rates in June and “raised some doubts about August as well”.
Dales said in a note that the particularly high figures for the services sector were the reason, and “suggest that sustained domestic inflation is dissipating more slowly than the BoE expects.”
British Chancellor Rishi Sunak said on social platform X that “inflation is back where it should be.”
Mr Sunak’s ruling Conservative Party is banking on signs of an improving economic environment as it trails in opinion polls ahead of a national election that must be held by the end of January 2025. The British economy emerged from a shallow recession in the first quarter of 2025 and grew 0.6% in 2020.
Bank of England Governor Andrew Bailey has stressed that the central bank will remain politically independent in deciding when to cut interest rates next, regardless of the upcoming election.
