Prices Up By 2.3% Solidifies Hopes For June Bank Rate Cut – Forbes Advisor UK

22 May: April Inflation Lands Within Whisker Of BoE Target

Steep falls in gas and electricity prices helped annual inflation to fall sharply to 2.3% in the year to April, down from 3.2% a month earlier, writes Andrew Michael.

Today’s announcement from the Office of National Statistics (ONS) puts the figure at its lowest since July 2021. The Bank of England’s inflation target is 2%.

The news offers hope of an interest cut from the Bank of England as early as June this year. The decision will be announced on 20 June. The day before, the ONS will announce the inflation figure for May.

The Bank next meets to determine the level of the Bank Rate in August.

According to the ONS, the monthly reading of the Consumer Prices Index showed that prices rose by 0.3% last month, compared with a 1.2 percentage point increase in April 2023.

Core CPI, which leaves out volatile data covering energy, food, alcohol and tobacco, stood at 3.9% in the year to April compared with 4.2% a month earlier.

CPI including owner-occupier costs (CPIH) rose by 3.0% in the year to April, down from 3.8% in March.

Grant Fitzner, ONS chief economist, said: “There was another large fall in annual inflation led by lower electricity and gas prices, due to the reduction in the Ofgem energy price cap.”

The cap fell by over 12% from 1 April to £1,690 for a household with typical consumption. It is expected to fall below £1,580 from 1 July.

Fitzner added: “Tobacco prices also helped pull down the rate, with no duty charges announced in the Budget. Meanwhile, food price inflation saw further falls over the year. These falls were partially offset by a small uptick in petrol prices.”

In recent years, the Bank of England has struggled to keep inflation in check thanks to the economic turmoil following Covid-19, supply chain bottlenecks and geo-political tensions. 

In its bid to quell rising prices, the Bank has maintained UK borrowing costs at a 15-year high of 5.25% since August last year. Reacting to today’s news, commentators remained unsure about the possibility of a June cut.

Lindsay James, investment strategist at Quilter Investors, said: “Today’s inflation figure still puts the UK on course this summer for its first rate cut in more than four years. The fact the headline rate begins with a ‘two’ is incredibly symbolic given the events since the pandemic and the fact inflation was over 11% less than two years ago.”

Alice Haine, personal finance analyst at Bestinvest, said: “Households can breathe a sigh of relief after the UK’s headline inflation rate tumbled to 2.3% in the 12 months to April, as the runaway price rises that ignited the cost of living crisis finally beat a retreat.

“With inflation closer to the Bank of England’s 2% target, all eyes are pinned on next month’s interest rate decision to see if the central bank will deliver more summer cheer with a rate cut. While the possibility of a summer cut is being floated by members of the rate-setting Monetary Policy Committee (MPC), whether it happens in June or August remains to be seen.”

Neil Birrell, chief investment officer at Premier Miton Investors, said: “UK inflation is following the trend elsewhere and is proving to be more resilient than hoped. It is not getting back to target as fast as the Bank of England would like, which will probably delay the first interest rate cut.”

15 May: Inflation Down But Hopes Fade for Next Fed Meeting

US inflation rose 3.4% in the year to April, down from 3.5% in the year to March, but likely not enough to prompt a reduction in borrowing costs when the Federal Reserves announces its next decision on 12 June, writes Andrew Michael.

Today’s numbers from the Labor Bureau of Statistics also showed that inflation ticked up by 0.3% in April itself, compared with a 0.4 percentage point rise in March.

According to the Bureau, rises in the cost of housing and fuel were responsible for nearly three-quarters of the overall monthly increase.

The core US annual inflation rate, which omits volatile food and energy prices, rose by 3.6% in the year to April, down from 3.8% a month earlier. The Bureau reported a 0.3 percentage point rise for the core monthly figure in April, down slightly on the 0.4% rise recorded a month earlier.

Having raised borrowing costs aggressively last year to 5.25%, the Federal Reserve, the US central bank, appeared to be winning the challenge of bringing soaring inflation levels back down to their long-term target of 2% (which is shared by the Bank of England and other central banks).

In recent months, however, returning inflation to this target has proved trickier than expected.

Lindsay James, investment strategist at Quilter Investors, said: “While on the surface it is positive to see US inflation fall from the previous month, looking at the trend over the past 12 months provides a different picture. 

“Inflation has been bouncing around the 3%-4% range for a considerable period of time now, and this is now arguably singlehandedly preventing the Federal Reserve from pushing the button on rate cuts.”

Richard Flax, chief investment officer at Moneyfarm, said: “This is a positive announcement and should give some more comfort that the next move in rates will be a cut. But it is still far from the Fed’s target of 2%, so we wouldn’t expect a swift reaction from the Fed. 

“The Fed has been consistent in its message that the hard data is what matters, and therefore we…