Money

United Kingdom inflation falls to lowest in 12 months

April 19, 2018 04:42·
Britain's Prime Minister Theresa May attends a press conference in 10 Downing Street London

Britain's Prime Minister Theresa May attends a press conference in 10 Downing Street London

The retail prices index, which includes the impact of mortgage costs, fell from 3.6% in February to 3.3% in March.

The pound tumbled after the data, sliding 0.5% to $1.4217.

Official data showed CPI in March was down 0.2 per cent from 2.7 per cent in February.

This is good news for our pockets: yesterday we found out that the average wage across the United Kingdom had risen 2.8 per cent, and when the inflation rate is lower than the rate wages are rising, that's nice for us because we can buy more for our money - what's called a boost to "real wages".

"While an interest rate rise now looks odds on in May, the Bank will still be wary of moving too fast and too soon, so beyond that monetary policy is still likely to move at a slovenly pace". Lastly, "core" CPI inflation moved down to 2.3 percent from 2.4 percent. Moreover, the tobacco duty increased in March 2017, but there was no corresponding increase this year due to the change in budget cycle.

Though the British economy is one of the laggards among industrial nations, with growth easing since the Brexit vote, it is operating near its capacity, which could stoke inflation.

On the inflation news the pound fell further from Tuesday's high to below $1.42.

Opinion, however, is divided on whether this will force the BoE to delay raising rates in May.

Markets had priced in an 85% chance of a Bank base rate rise in May, but Ben Brettell, senior economist at Hargreaves Lansdown, said: "Traders had been betting on an interest rate rise next month from the Bank of England, and while this still looks the most likely outcome, the absence of inflationary pressure lessens the onus on the Bank to act immediately".

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He said: "Investors are still treating a May rate hike as a done deal, after the Bank of England just about spelled it out in a confident series of statements and inflation projections that may now be revised".

Samuel Tombs, chief United Kingdom economist Pantheon Macroeconomics reckoned that the MPC would be inclined to wait.

Markets have been pricing in two interest rate hikes from the BoE's Monetary Policy Committee (MPC) this year, in May and November, as workers in Britain enjoy a pick-up in wage growth.

Consumers still seem to be cautious with discretionary spending and are not splashing out on the high street.

Both sterling and United Kingdom gilt yields have initially moved down sharply in response to the data, which are seen as weakening the case for further interest rate rises from the Bank of England (BoE).

Figures released by the ONS today show that average house prices in London fell by 1% in the year to February.

The data appears to show that the squeeze on United Kingdom households may be coming to an end as wages rise.

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