UK inflation at one-year low

Bloomberg

UK inflation slowed to the weakest in a year in March, raising questions about how quickly the Bank of England will increase interest rates.
Consumer prices rose 2.5 percent from a year earlier, down from 2.7 percent in February, the Office for National Statistics said on Wednesday. That’s less than economists estimated and below the BOE’s most recent forecast of 2.8 percent for the same period. Core inflation cooled to 2.3 percent, also the lowest rate in a year.
The figures may weaken the case for more interest-rate increases later this year. Policy makers are widely expected to raise the benchmark for a second time in six months at their May meeting as inflation continues to exceed the 2 percent target.
Officials have also said they’ll likely need to raise borrowing costs several times over the coming years as domestically generated inflation pressures pick up.
The pound tumbled after the data, sliding 0.7 percent to $1.4182 as of 10:19 a.m. London time.
While a hike next month is still almost fully priced in by markets, traders now see about a 40 percent chance of a follow up in November, down from more than 50 percent at the start of this week. “The market is likely to question the likelihood of BOE rate hikes, both near term and later in the year,” said Alan Clarke, an economist at Scotiabank.
Even if the MPC does look through the low reading on this occasion and hike rates in May, this dilemma is likely to continue over the remainder of the year.”
For hawks at the BOE, labor-market data provided ammunition, with the jobless rate falling to its lowest since 1975 and wages rising at their fastest pace in almost three years. Downward momentum on inflation came for women’s clothing, which rose at a slower pace than usual for this time of year, the ONS said.
Producer prices eased to the lowest rate since 2016, mainly due to smaller increases in food prices, the report said.