Inflation continues to fall - will interest rates rise in May?
- Author: David Armstrong Apr 19, 2018,
Apr 19, 2018, 1:54
The data comes in light of United Kingdom wages rising by 2.8 per cent for the three months to the end of February, meaning wages are now rising at a faster pace than the increase in the cost of a typical basket of goods and services. Investors had expected inflation to hold at the 2.7% level.
Inflation jumped in Britain after June 2016's vote to leave the European Union hammered the value of the pound and pushed up the cost of imports.
These numbers probably won't stop the Bank of England from raising rates next month, but sharply lower inflation eases the upward pressure.
Coupled with rising wages and record levels of employment, this is a boost to spending power.
A pound at 10.30am was worth $1.42, down from $1.43 before the inflation announcement.
Thomas Wells, manager of the Smith & Williamson Global Inflation-Linked Bond fund, said while inflation figures are strong, he remains positive that headline inflation will moderate further in the second half of the year, slowly moving back towards target.
The March CPI rate of 2.5 per cent was way below the BoE's forecast of 2.8 per cent. Prices dropped by 1% in the year to February. "Inflation looks to be falling back as predicted, but with wages picking up and unemployment still falling, it's possible this tightness in the labour market could eventually push inflation back up", he said in a statement.
There were 8.73 million people aged from 16 to 64 years who were economically inactive (not working and not seeking or available to work), little changed compared with September to November 2017 but 154,000 fewer than for a year earlier.
On balance, however, a quarter-point hike in the benchmark rate to 0.75 percent is still expected, not least because wage growth at 2.8 percent is outstripping price rises.
Part of the fall was driven by "women's clothing prices rising slower than usual for this time of year", Mike Hardie, the ONS's head of inflation said.
It later trimmed some of those losses to stand only 0.4 percent down at $1.4233.
"We know that inflation should ease over the course of this year; if consumption also falls or stagnates, the justification for higher rates could begin to erode quite quickly".