UK Headline CPI Remains in Double Digits

While the headline rate of inflation eased from last months figure of 10.4%, it remained 0.3 percentage points above expectation, coming in at 10.1%. The fall in the rate of inflation on an annualised basis was chiefly driven by easing energy costs, which last year had been subject to meteoric supply and demand side pressures including the Russian invasion of Ukraine and economies’ post pandemic recovery. Furthermore, on a month-on-month basis the price of heating oil fell by 6.7% between February and March 2023, compared with a rise of 44.0% between February and March 2022. This comes as petrol prices eased from £1.60 in March 2022 to £1.47 in March 2023.

According to the ONS “there were also downward effects from housing and household services, furniture and household goods, clothing and footwear, and restaurants and hotels.” Nevertheless, food and non-alcoholic drinks were one of the the key drivers of consumer prices remaining elevated, though this comes as food price inflation eases across the globe. Here, the index rose to 19.2%, marking its highest rise in 45 years as vegetable shortages persisted.

In a reminder of the prevalence of ‘sticky’ inflationary pressures which have become embedded into the economy, the Core CPI index – which excludes volatile items such as food and energy – also came in hotter-than-expected at 6.2%. This is just down from September’s all-time peak of 6.5%.

Following UK’s the hotter-than-expected inflation print, there has been a bid on sterling in early morning trading as markets now fully price in a hike of 25bps from the Bank of England on 11th May. As markets weigh on further monetary tightening from Threadneedle Street, the domestically focused FTSE 250 has come under pressure with the index slipping around 0.5%.

The yield on the UK 10-year bond has also risen above 3.75%, some 14bps above the US 10-year benchmark and 127bps above the German 10-year bund. Meanwhile, the FTSE 100 has shrugged off domestic headlines around inflation with the blue-chip index rising around 0.1% this morning.