U.K. headline inflation decelerates again in March

U.K. headline inflation decelerated again in the month of March for the second straight month. The consumer price inflation slowed from February’s 2.7 percent to 2.5 percent in March, coming in below consensus expectation of a stable rate of 2.7 percent. This is the third fall in the past four months after last November’s peak of 3.1 percent. In the meantime, the core inflation rate slowed slightly to 2.3 percent from 2.4 percent in the prior month. Retail price inflation also dropped by more than expected to 3.3 percent.

Women’s clothing prices were the most significant downward contributors, rising at a slower rate than usual for this time of year, and a change in the timing of the annual tobacco duty rises because of the budget moving to the autumn. In all, the figures definitely underpin the view than the inflationary effect of sterling’s earlier depreciation has peaked, noted Lloyds Bank in a research report.

Sterling and UK gilt yields have initially moved down sharply following the release of the inflation data, which are seen as softening the case for additional rate hikes from the Bank of England. But, the U.K. central bank policymakers would also be watchful of evidence of a gradual rise in domestic inflationary pressures. The labor market data released yesterday indicated a rise in regular pay growth to 2.8 percent and a tight labor market argues for an additional acceleration in the coming months.

“These domestic considerations still make it likely that the BoE will hike interest rates by 0.25 percent to 0.75 percent at its May meeting”, added Lloyds Bank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at -16.3564, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -10.3394. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest