LONDON (Reuters) -Inflation in Britain fell by less than expected, prompting investors to cut their bets on a Bank of England rate cut next month which would have given a boost to embattled Prime Minister Rishi Sunak before an election this year.
Consumer prices rose by an annual 2.3%, down sharply from a 3.2% increase in March and its lowest since July 2021 when it stood at 2.0%, the Office for National Statistics said.
But the BoE – which has an inflation target of 2% – and economists polled by Reuters had forecast a bigger drop to 2.1%.
Services inflation – a key gauge of domestically generated price pressure for the BoE – was much higher than expected, while petrol prices also rose.
Sterling jumped after the data and investors priced the chance of a BoE rate cut in June at just 18% down from 50% on Tuesday.
Economists had widely expected a sharper drop in inflation, citing a 12% drop in regulated household energy tariffs that took effect last month.
“While inflation continues to fall sharply, this report will come as a disappointment to the Bank of England and investors looking for a rate cut in June,” said Luke Bartholomew, senior economist at asset manager abrdn.
“In particular the strength of core inflation and services inflation, both of which came in a fair bit stronger than expected, will make it harder for the Bank to feel confident that underlying inflation pressure is cooling adequately.”
Services inflation only inched down to 5.9% from 6.0% in March. The BoE’s forecasts and the Reuters poll had pointed to a reading of 5.5%.
