UK inflation dips to 13-Month low in April, adding to Mark Carney’s interest rate puzzle
Inflation in the UK dropped to its lowest levels since March 2017 last month, according to the latest figures from the Office for National Statistics (ONS).
Consumer price inflation cooled to 2.4 percent in April, down from 2.5 percent this March. The drop in consumer prices has once again dampened expectations of a Bank of England rate rise this year.
The figure was below economist expectations, which predicted inflation to hold at 2.5 per cent.
Read more: Pound jumps as BoE tips six interest rate rises by 2021
The ONS Consumer Price Index, including housing costs, has fallen back from a recent high of 2.8 per cent during autumn 2017, meaning the April figures are the lowest since January 2017.
The ONS said that the main contributor to the change in the rate came from airfares: last year, Easter fell in the middle of April, making airfares go up by 18.6 per cent, whereas this year, the holiday fell at the beginning of April, before the price collection period.
However, rising fuel costs offset the effects of airfares to a degree, with petrol prices rising 1.5 pence per litre between March and April 2018, according to the ONS.
Read more: Eurozone inflation falls to add to European Central Bank QE quandary
Alistair Wilson, head of retail platform strategy at Zurich said: “Coupled with rising wages and record levels of employment, this will provide a small, yet well-deserved boost to the spending power of UK households.
“The final part of the puzzle is what the monetary committee chooses to do with interest rates, with a rise held off from May but still on the table for later this year.”
Yael Selfin, chief economist at KPMG in the UK says the latest figures make an interest rate hike even more important: “With oil prices on the up and domestic price pressures unabated, we may not see further falls in inflation this year.
“This would make it even more pertinent for the Bank of England to resume its gradual increase in interest rates.”
However, Jacob Deppe, head of trading at online trading platform Infinox says a rate hike is out of the question: “Short of an economic miracle in the second half of the year, the chances of a rate rise before 2019 are remote at best.”
Deppe also says there may be more bad news in store for the pound: sterling fell 0.6 per cent against the greenback to trade at $1.335.
“In the immediate aftermath of the data emerging, the Pound effectively face-planted,” said Deppe.
“Sterling has been dealt a particularly weak hand in recent weeks and could be under pressure for some time yet.”