Britain’s inflation rate unexpectedly remained elevated in April, dashing market expectations that the Bank of England would be ready to cut interest rates as soon as next month. The consumer price index rose 2.3% annually, higher than the 2.1% forecast by the BoE and economists.
Of particular concern was services inflation, which the BoE closely watches as a sign of domestic price pressures. Services prices rose 5.9% year-over-year, significantly outpacing the 5.5% predicted by policymakers. This suggests underlying inflation remains worryingly high.
The stubbornly high inflation figures are a setback for the government’s hopes of declaring victory over the cost-of-living crisis ahead of this year’s election. While Prime Minister Rishi Sunak hailed it as a “major moment”, economists say the data makes a June rate cut by the BoE highly unlikely now.
Market pricing for rate cuts this summer plunged after the report. Investors now see only a 15% chance of a reduction in June, compared to 50/50 odds beforehand. Two-year UK bond yields spiked on the inflation overshoot.
BoE policymakers had anticipated a sharper drop in inflation following the easing of the energy price cap last month. However, elevated core inflation and still-high wage growth may keep them on hold until more decisive evidence that price pressures are easing.
The figures add to pressure on UK households still feeling the squeeze from last year’s cost-of-living crunch. The opposition Labour party said families remain “worse off” after years of Conservative economic turmoil.
Compounding the disappointing news, UK public borrowing in April also overshot forecasts, further complicating the fiscal backdrop as the government bids to reset the economic narrative.
