Sticky core and services inflation could delay first rate cut from June to August.
22 May 2024
First the good news on UK inflation – it dropped to 2.3% in April, compared to 3.2% the month before, the lowest in nearly three years. Now the bad news - it was less of a drop than forecast by all (most economists expected a drop to 2.1%) including the Bank of England (BoE), and this puts any hopes of a cut in rates in June on the back burner now. Energy costs contributed the largest to the overall fall in inflation, but the services element of inflation remains uncomfortably sticky at around 6%, and this will weigh heavily on BoE thinking. Core CPI fell from 4.2% to 3.9% while expectations were for it to slow to 3.6%, so still higher than expected even, if it was down on the month. The markets now have to move to August for the likely first rate cut from the BoE, and this is leading to a mildly pessimistic tone in risk assets today.
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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not an indicator for the current or future development.