| 7 December 2023, Thursday |

UK inflation falls by less than expected, core inflation jumps

According to official statistics, Britain’s high inflation rate decreased by less than predicted in April, but a widely watched core gauge of price increase jumped to a 31-year high, cementing expectations on future Bank of England interest rate hikes.

In April, the consumer price index jumped 8.7% year on year, giving Britain and Italy the equal highest rate of inflation among the Group of Seven major countries.

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.

  • Reuters