Inflation in Britain fell by less than expected in April and a key core measure barely dropped, prompting investors to pull bets on a rate cut next month which could have boosted embattled Prime Minister Rishi Sunak before an election this year.

Consumer prices rose by an annual 2.3 per cent last month, down sharply from a 3.2 per cent increase in March and its lowest since July 2021 when it stood at 2.0 per cent, the Office for National Statistics said.

But the Bank of England – which has an inflation target of 2 per cent – and economists polled by Reuters had forecast a bigger drop to 2.1 per cent.

Services inflation – a key gauge of domestically generated price pressure for the BoE – was much higher than expected, while petrol prices also rose.

Sterling jumped after the data and investors priced the chance of a BoE rate cut in June at just 18 per cent, down from 50 per cent on Tuesday.

Economists had expected a sharper drop in inflation after a 12 per cent drop in regulated household energy tariffs that took effect last month.

“While inflation continues to fall sharply, this report will come as a disappointment to the Bank of England and investors looking for a rate cut in June,” said Luke Bartholomew, senior economist at asset manager abrdn.

“In particular, the strength of core inflation and services inflation, both of which came in a fair bit stronger than expected, will make it harder for the Bank to feel confident that underlying inflation pressure is cooling adequately.” Services inflation inched down to 5.9 per cent from 6.0 per cent in March.

The BoE’s forecasts and the Reuters poll had pointed to a reading of 5.5 per cent.

Core inflation, which includes goods but not energy, food and tobacco, also reflected persistent price pressures, with the annual rate falling only to 3.9 per cent from 4.2 per cent in March. The Reuters poll had forecast a reading of 3.6 per cent.

PRICE PRESSURES

Recent labour market data has brought mixed news on the price pressures front, with private sector wage growth, excluding bonuses, easing only marginally in the three months to March.

The BoE is concerned that rapid wage growth, which makes up much of the inflation rate in the services sector, could sustain inflationary heat across the economy.

Sunak, who is struggling to woo voters back to his Conservative Party ahead of national elections expected later this year, has sought to take credit for the fall in inflation.

“Today marks a major moment for the economy, with inflation back to normal,” he said in a statement.

Wednesday’s data means Britain has a lower rate of inflation than the United States, Canada, France and Germany.

Japan is yet to report April inflation data. Italy’s inflation rate is 0.9 per cent.

Still, Britain ranks poorly among Western European countries for its inflation record since 2020, with consumer prices up by more than 22 per cent over that time frame – with only the Netherlands, Austria and Germany faring as badly.

First Published: May 22 2024 | 2:33 PM IST