UK Inflation Slows, Remains Higher Than Expected

UK inflation saw a decline in its annualized rate, but a smaller decline than had been widely expected.



UK inflation has eased by a slower rate than anticipated in the year up to March 2023, falling by just 0.3% to 10.1% compared to the figures for February, which is likely to lead to a slightly more hawkish approach by the Bank of England.

Many analysts believed that inflation would dip below the 10% mark, back into single digits.

Data from the Office of National Statistics found that soaring food prices continue to hit UK consumers and have now climbed by a staggering 19.1% year-on-year in March, the highest rate of increase which has been since August 1977.

The most significant upward effects from food prices were due to sky-high increases in bread and cereals, and there were smaller rises seen in fruit, chocolate, and confectionery products.

Household prices were the next highest price category as they have risen by 11.6% annually, while restaurants and hotels are charging 11.3% more than they were in March 2022.

In a worrying sign, core CPI, which excludes energy, food, alcohol, and tobacco prices, remained stubbornly high at an annualized rate of 5.7%.

The next interest rate decision will be made on 11th May. The last time around the Bank of England’s Monetary Policy Committee voted 7-2 in favour of raising rates to 4.25%.

Marcus Brookes, chief investment officer at Quilter Investors, reflected: “This inflation problem is persisting, and the fact is it remains at eye-watering levels.

Nevertheless, consumer confidence is beginning to return, and the economy may not be as harmed by this cost-of-living crisis as first feared. For as long as the economy can hold up, the Bank of England will keep the option of interest rate rises firmly on the table.”

Following the inflation data release, both the UK Pound and the UK 2-Year Gilt yield rose, as the prospect of higher interest rates has now grown.

The GBP/USD and GBP/EUR currency pairings rose by 0.16% and 0.33% respectively following the release, with the British Pound buying $1.24.

The UK gilt yield rose by 0.17% to 3.85% in the aftermath of the prices falling by a small margin.

Canadian CPI Falls to 4.3%

Annualized inflation in Canada ran to 4.3% in the year to March according to Statistics Canada.

It was the smallest year-on-year price rise seen since August 2021 and the fifth consecutive month where annualized inflation declined, which suggests that inflation in Canada is increasingly under control.

The data will be a tonic to the Bank of Canada, which last week chose to keep its interest rate at 4.50%, after deciding to pause a cycle of eight consecutive rate rises in March.

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