James Smith, developed markets economist at ING, notes that the UK’s headline inflation moved above the Bank of England’s 2% target in April with a print of 2.1% (YoY), but this is largely down to an increase in a recently-introduced household energy price cap.
Key Quotes
“The UK energy regulator’s decision lifted household electricity/gas prices by roughly 10% in April, but given recent declines in wholesale gas prices, this cap could be lowered again later in the year.”
“Housing costs aside, underlying consumer price pressures appear more benign. At 1.8%, core inflation is a touch below target and we expect it to stay there for much of this year. In principle, this is another reason to think the Bank of England will keep rates on hold for the foreseeable future.”
“Admittedly, there have been some tentative warning signs emerging on employment – hiring surveys have hinted at a reduced appetite to hire, particularly for full-time positions. This, combined with the fact that Brexit uncertainty will continue to keep a lid on growth (via lower investment), suggests to us that the Bank of England is likely to keep rates on hold through this year.”
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