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UK inflation dropped less sharply than expected to 2.3 per cent in April, despite falling energy prices, denting hopes that the Bank of England will lower interest rates at its next meeting.
The rise in the consumer price index was higher than the 2.1 per cent predicted by the BoE and economists polled by Reuters.
But the figure, which compared with March’s rate of 3.2 per cent, is still likely to be hailed by Rishi Sunak’s government as a sign the UK is winning its battle with inflation ahead of the election expected this year.
The BoE has argued it needs more evidence that price pressures are receding before it cuts rates from their current 16-year high of 5.25 per cent.
The pound edged 0.3 per cent higher against the dollar to $1.2741 on the news.
Before derivatives markets opened on Wednesday, traders were evenly split on whether the Bank of England would deliver its first interest rate cut next month, with two quarter point cuts priced by the end of the year.
The BoE’s policymakers had predicted a steep fall in inflation due to a reduction in the regulatory cap on household energy bills last month.
The MPC next meets on June 20. Wednesday’s inflation figures, coupled with upcoming releases on prices and the labour market, will be critical inputs into that decision.
Data on the level of services prices will be a key factor, because the BoE sees these as an important gauge of the strength of domestic pricing pressures.
The ONS reported that year-on-year services price growth was 5.9 per cent in April, below the 6 per cent reading for March. However that was well above the 5.5 per cent rate of services price inflation predicted by economists and by the BoE in its latest round of forecasts.
Core inflation was 3.9 per cent, compared with a prediction of 3.6 per cent by economists polled by Reuters. That was down from 4.2 per cent the previous month.
Additional reporting by Mary McDougall
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