UK inflation falls by less than expected, core inflation jumps
2023.05.24 03:31
© Reuters. FILE PHOTO: Fresh produce are displayed at a fruit and vegetable stall at Portobello Road in London, Britain, March 31, 2023. REUTERS/Toby Melville
By Andy Bruce
LONDON (Reuters) -Britain’s high inflation rate fell by less than expected in April and a closely watched core measure of price growth surged to a 31-year high, according to official data that will cement bets on more Bank of England interest rate hikes.
The consumer price index rose by 8.7% in annual terms in April, leaving Britain with the joint highest rate of inflation among Group of Seven advanced economies along with Italy.
Economists polled by Reuters had forecast that the headline CPI annual rate would drop to 8.2% in April, moving further away from October’s 41-year high of 11.1%.
Earlier this month, the BoE forecast inflation of 8.4% for April.
“With inflation proving stickier than the Bank expected, it now seems all but certain that the Bank will raise interest rates from 4.50% to 4.75% in June and perhaps a bit further in the months after,” Paul Dales, chief UK economist at Capital Economics, said.
The BoE is due to announce its next decision on rates on June 22 and after Wednesday’s data investors were pricing the likelihood of another quarter-percentage point increase in borrowing costs next month at 100%, up from 83% on Tuesday.
Sterling rose against the U.S. dollar and the euro after the figures were published before giving up some of those gains.
Core inflation, which excludes energy, food and tobacco prices and price growth in the services sectors – which is also watched closed by the BoE to gauge the persistence of inflation – both hit their highest rates since March 1992.
The economists polled by Reuters had largely expected the core inflation rate to be unchanged.
Despite the most recent fall, inflation continued to eat into the spending power of workers whose pay is rising by less.
The BoE is worried that the surge in inflation might lead to a lasting upward shift in wage demands and businesses’ pricing strategies, exacerbated by a post-pandemic cut in Britain’s labour force and problems caused by Brexit.
Annual food and drink price inflation – which soared to its highest rate since 1977 in March – cooled only marginally in April to 19.1% from 19.2%.
“Although it is positive that it (inflation) is now in single digits, food prices are still rising too fast,” finance minister Jeremy Hunt said in a statement. “We must stick resolutely to the plan to get inflation down.”
