17 April 2024
If you are covering the latest UK inflation statistics, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“UK inflation has fallen to 3.2%, slightly less than forecasted, down from 3.4% in February, in a data release that will be reassuring to the Bank of England and leaves rate cuts on the table in the near term. Last month saw a slightly faster than expected decline which initially drove gilt yields lower, however since then we have seen continued signs of a strong US economy along with higher than expected US CPI - which has pushed back expectations of rate cuts in the US and in the UK too, with the markets expectation that the BoE will be reluctant to move in a different direction from the Federal Reserve, due to the risk of devaluing the pound and hence triggering a further inflationary pulse.
“This effect has seen the market price in less than two rate cuts in the UK by year end, approximately one fewer than a month ago despite the improving inflation data. This latest inflation number may question this as the Government heads into the election banking on interest rate cuts feeding through to the real economy.
“With a slightly weak UK labour market report out earlier this week, showing unemployment has ticked up from 3.9% to 4.2% even as wage inflation continues to run hot, this is one signal that tight monetary policy is having an economic impact. However, with oil prices up around 16% since the start of the year, as tensions continue in the Middle East, investors will need to weigh the wider global picture rather than extrapolating policy from CPI data alone.
“Whilst rate cuts may therefore still be a little further away than investors expected at the start of the year, reassuring levels of global growth and broadly declining inflationary forces should ultimately dominate the market direction in months to come.”
