U.K. headline inflation remains stable in March

The headline inflation of U.K. remained stable in the month of March. On a year-on-year basis, the consumer price index came in at 1.9 percent, as compared with the consensus expectations of a modest rise to 2 percent. Other key measures of inflation also came in below expectations with CPIH staying at 1.8 percent year-on-year, while the annual rate of RPI inflation dropped back to 2.4 percent year-on-year, from 2.5 percent year-on-year previously.

The majority of the miss reflected weaker rises in prices of ‘core’ goods and services, noted Lloyds Bank in a research report. In particular, within the recreation and culture category, prices of computer games and consoles rose at a lower rate this year as compared to a year ago. In the meantime, further downward influences came from a number of transport related goods/services where prices either dropped or were flat in 2019, relative to rises in March 2018.

In the meantime, further downward influences came from several transport related goods/services where prices either dropped or were flat in 2019, compared to rises last March. These were especially evident in rail fares and prices of new cars, while airfares in 2019 dropped by more in March compared with a year ago.

Therefore, the ‘core’ rate remained stable last month at 1.8 percent year-on-year. That the core rate did not fall in March was because of a range of small positives throughout several sectors such as clothing at footwear.

Meanwhile, outside of the ‘core’ categories, food prices were also slightly weaker last month, falling 0.1 percent compared to a 0.3 percent rise last March, though this influence was not considerable enough to add further downside to the headline inflation rate, which saw its third straight monthly outturn below 2 percent. However, this March outturn is expected to be the last time that headline inflation is below the 2 percent target for some time, said Lloyds Bank.

The effect of this month’s rise in the energy price cap should nearly ‘guarantee’ that CPI moves above 2 percent by April. In the meantime, the continued uptrend in global oil prices is expected to feed through into other areas of the U.K. inflation basket, most markedly in motor fuel prices. However, beyond that the outlook for inflation depends on the extent to which domestic prices pressures build.

“In the scenario that current uncertainty about the UK’s withdrawal from the EU is resolved soon, the outlook for inflation is consistent with our view that modest increases in Bank Rate are likely to be required over the forecast horizon, particularly with weak productivity and elevated pay growth consistent with further increases in unit labour costs”, added Lloyds Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -147.923 while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 3.55612 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex