ONS Consumer Price Inflation update

22 May 2024

Commenting on the ONS Consumer Price Inflation update, Chris Arcari, Head of Capital Markets, Hymans Robertson, said:

“Headline inflation fell to 2.3% year-on-year in April 2024, from 3.2% in March, but by less than expected (the BoE and economists had expected inflation to fall to 2.1%). We still expect headline inflation to fall close to, or even below, target in the coming months, as energy prices and goods and food price disinflation weigh on the year-on-year comparison. However, we expect the Bank of England to pay close attention to core and service-sector inflation, as a better guide to underlying inflation pressures.

“Year-on-year core and service sector inflation also fell less than expected in April 2024, to 3.9% and 5.9% year-on-year, respectively, from 4.2% and 6.0% in March. Elevated core and service-sector inflation raise uncertainty about when inflation will return to target on a sustainable basis. After this morning’s release, markets reduced the probability of a June rate cut from 50% to 15% and expect between 1 and 2 0.25% pa rate cuts by the end of 2024. That pricing does not feel unreasonable given the Bank of England sets policy on where they think key measures of inflation are going, rather than where they are, currently, but the risks remain that that the Bank cuts less, rather than more, than the market expects.”

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