Inflation in the UK remained in the double digits in March. Higher-than-expected inflation again seems to strengthen the grounds for the Bank of England to raise interest rates further.
Britain’s Office for Statistics (ONS) said on Wednesday that the consumer price index (CPI) rose 10.1% in March from a year earlier. In particular, the price of foodstuffs rose sharply for the first time in about 40 years. Economists had expected a 9.8% rise.
UK March Consumer and Retail Price Index: Statistical Summary (Table)
Traders See Rates at 5% With Inflation Still in Double Digits
Price pressures in the UK are not subsiding as quickly as hoped
Source: Office for National Statistics, Bloomberg
After the announcement of the CPI, the market tilted to the view that the Bank of England’s interest rate hike cycle, which has been proceeding at the fastest pace in 40 years, would continue, and moved to factor in additional interest rate hikes. Monetary Policy Committee (MPC) members have suggested a moratorium on rate hikes once inflationary pressures abate, but today’s data show Britain’s inflation momentum is outpacing that of the United States and the euro zone. Indicated.
Peak rate forecast rises above 5%
The Bank of England’s peak interest rate, priced in by money markets, rose above 5% to its highest level this year. Swaps linked to the dates of central bank meetings are expected to raise interest rates by 0.25 percentage points at both the May and June meetings.
“For real demand to return to bonds, the market needs a clear signal that inflation is decisively lower,” said Imogen Bakula, head of U.K. rates strategy at NatWest Markets. He expects more U.K. Treasuries to sell, pushing 10-year yields to 4.3% from around 3.8% today.
Markets See An Additional 75 bps in BOE Rate Tightening
Traders bet on 25 bps hikes in May, June and September
Source: Bloomberg
After the CPI was announced, the pound rose slightly against the dollar. British bonds fell, with two-year bond yields up 15 basis points (bp, 0.01%) to 3.84%.
“Inflation may not be as controlled as the markets and the Bank of England thought,” said Evelyn Gomeslichty of Mizuho International. “These data send a clear message to the central bank: it is too early to stop rate hikes,” he said.
Britain Has a Worse Inflation Problem Than Its Major Peers
Source: Office for National Statistics
Inflation for food and non-alcoholic beverages rose to 19.1%, the highest since 1977. The ONS said prices of bread, chocolate and confectionery rose to all-time highs.
Core inflation, which excludes some volatile items such as food and energy prices, was 6.2%, and service prices rose 6.6%, both unchanged from the previous month. Both are closely watched by policy makers at the Bank of England to gauge underlying inflation, with services prices positioned as indicators of wage pressures.
Surging Food and Energy Prices Have Driven Inflation
Source: Office for National Statistics
Original title:UK Inflation Sticks Above 10%, Lifting Prospect of Rate Hike (4)
Traders Bet on 5% BOE Peak Rate as Inflation Fears Resurface
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