The pound pared gains against the dollar on Wednesday after UK CPI fell to 2.6% and piled pressure on the Bank of England to cut interest rates.
March inflation of 2.6% was lower than February’s reading of 2.8% and 3% in January.
“Today’s inflation figures suggest a fragile but promising momentum – a second month of stability that hints we may be turning a corner, though not yet out of the woods,” said Paul Noble, CEO of Chetwood Bank.
While the drop in inflation will be welcomed by first-time buyers and household bill payers, the drop in the rate of inflation is only predicted to be temporary, with economists expecting the rate to tick higher in the coming months.
That said, interest rate futures market quickly priced in a rate cut at the Bank of England’s next meeting.
Inflation was expected to rise later this year, even before Donald Trump unleashed his tariffs on the world. The net impact of the tariff war is inflationary, so the hopes of sustained interest rate cuts are negligible.
“Like an inattentive driver in rush hour traffic, inflation has hit the brakes again, falling to 2.6% in March. But the rough ride isn’t over. Once the price rises of Awful April kick in, we can expect it to accelerate sharply again,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
Investors may find solace in Trump’s propensity to U-turn, which may see him roll back on tariffs before they cause long-lasting damage to prices.
The pound dropped against the dollar in the immediate reaction to the release, but was still higher on the day.