United Kingdom inflation falls to lowest in 12 months

Wage growth is now rising again at a faster rate than prices according to the ONS

This was the weakest rate since March 2017, when prices gained 2.3 percent.

The latest United Kingdom inflation data is unlikely to get in the way of a May rate hike, but a further deceleration in core CPI over coming months could prove to be a headache for policymakers later in the year, James Smith, an ING economist, said.

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".

However, it is now looking highly questionable as to whether there will be any further interest rate increases in 2018 after the probable move in May.
December short sterling interest rate futures FSSZ8 rose 4 ticks on the day to a four-week high.

Economists were expecting inflation to hold steady at 2.7%.

"This latest reading means that inflation is now at its lowest rate since March of past year and has fallen by 0.5 percentage points already in 2018", said Danske Bank chief economist Conor Lambe.

"UK inflation is expected to remain above the Bank of England's 2 per cent target this year, mainly because of some persistence in the lagged effects of Sterling's previous decline on components of the consumer basket".

The ONS said the biggest downward contribution to inflation came from clothing and footwear, mainly women's clothing. Alcohol and tobacco taxes also didn't increase as usual after the government changed the timing of its annual budget announcement to the autumn.


The inflation slowdown is expected to ease the pressure over the household income squeeze.

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

Britain's consumer price index (CPI) 12-month rate was 2.5 percent in March, down from 2.7 percent in February, according to Office of National Statistics (ONS) data released on Wednesday.

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.

And with inflation still above target, rate-setters, who last November backed the first rate hike since the crisis, may not get many better chances to raise borrowing rates again soon.

Meanwhile, the ONS said house prices in London experienced the first annual fall since September 2009.

This comes at a time when the Brexit vote's immediate impact is waning: the pound slumped in the immediate aftermath of the June 2016 vote to leave the European Union, prompting a rise in the cost of imported goods, such as clothes, energy and food.

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