This morning’s UK inflation release showed price pressures remaining marginally hotter than expected in March, with headline CPI falling to 3.2% YoY, marginally above the MPC’s forecasts as outlined in the February monetary policy report.
Nevertheless, while a touch slower than expected, the UK economy continues to make disinflationary progress towards the 2% target, with the downward trend in the pace of headline inflation continuing.
This is especially true of the all-important services CPI gauge which, albeit remaining at 6% YoY, printed bang in line with the MPC’s projections, while also falling to its lowest level since January 2023.
On the whole, this data indicates that the UK economy continues to make disinflationary progress towards the MPC’s 2% price target, with the pace of this progress broadly in line with the forecasts outlined in the February Monetary Policy Report; at this stage, the UK economy simply needs to match those forecasts to keep the MPC on course to cut, likely in June, with inflation now simply needing to recede in line with the pace that policymakers expect to keep the door to easing open.
Headline CPI remains on track to achieve the inflation target in the spring, as the impact of falling energy prices feeds into the data which, when combined with yesterday’s data showing a rise in unemployment to a 6-month high 4.2% in February, should give the MPC the rationale that they require to deliver the first 25bp cut in June.
However, despite slowing, services inflation remains relatively sticky, and with regular earnings growth continuing to run at a clip of 6% YoY, the MPC will likely embark on a relatively cautious pace of easing once the first cut is delivered, while a handful of external MPC members may still harbour lingering concerns about the persistence of price pressures, and delay their own votes to ease until later in the summer.
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