- Inflation in the UK slowed less than analysts were expecting last month, with consumer prices rising 3.2% in March compared with a year earlier. The print was down from 3.4% in February. Whilst the increase was a step in the right direction and the lowest since September 2021, both markets and the BoE had been expecting a print of 3.1%. Core inflation, which excludes energy and food fell to 4.2% from 4.5%, which was also hotter than expected. One area which is likely to concern the BoE is the services inflation reading of 6%. Again, whilst slowing from February’s 6.1%, the release was considerably above the 5.8% reading that markets were expecting. Inflation overall continues to fall and is in a far better position than at the end of 2022 when it peaked above 11%, however this morning’s data has led markets to reprice the timing and number of interest rate cuts from the BoE. Currently just 33 basis points of easings are expected, whilst last month markets were expecting up to three reductions of 25 basis points. The repricing follows recent caution from BoE officials, including Megan Greene, who last week warned that a reduction “should still be a way off.” The pound has gained since the data was released, with GBPUSD moving approximately 50 pips higher since the announcement.
- The US dollar remains firm after Fed Chairman Jerome Powell yesterday said that recent data has not given officials confidence that inflation is heading towards its target and that they will keep interest rates steady for “as long as needed.” His remarks come after inflation came in higher than expected for a third straight month and underlines that officials see little urgency to cut interest rates anytime soon. Earlier this week markets once again pushed back on the timing of the first cut from September to November, with some analysts suggesting that we may not even see a reduction in 2024.
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