Rejoice: Inflation in the UK came in below estimates in key data released on Wednesday. You were all worried sick, I know. You’re now free to go about the rest of your Fed day in peace.
Wednesday’s release showed price growth slipped to 3.4% in February, down sharply from January and the slowest annual rate since September of 2021. Economists expected 3.5% from the headline print.
The slowdown was evident for most measures, including core, which rose at the slowest pace in over two years.
Services inflation remains far (far) too hot, but at 6.1%, it too fell markedly from January, more than reversing an uptick seen over the preceding two months.
The data came on the eve of a Bank of England policy gathering that’ll be notable to the extent it preserves the softer forward guidance from February’s meeting, at which one of three dissents was for a cut.
Expect inflation in the UK to be at or below target by May. The mechanical effect of lower energy bills should drive the headline pace down meaningfully.
Food price inflation’s cooling too. Indeed, at 5% it was the slowest since January of 2022 last month. The high, you’re reminded, was north of 19% in March of last year.
If even one reader catches the joke from the chart header, I’ll be happy.
“On a month-on-month basis, producer prices for food have either been flat or slightly negative for a while now and that’s feeding through to consumers very noticeably,” ING’s James Smith said. The bank expects the annual rate to be below 1% by summer.
Wage growth remains a concern for policymakers. At more than 6%, private sector pay growth is down from the highs, but still looks uncomfortably elevated. The fact that it’s running at virtually the same annual rate as services inflation isn’t a coincidence.
The latest installment of a BoE CFO poll showed UK firms expect wage growth to remain above 5% over the next 12 months. The associated time series hasn’t been below 5% in nearly two years.
If you’re Rishi Sunak, rate cuts can’t come fast enough. And yet, even if the BoE started cutting this week (they won’t), it wouldn’t matter: Liz Truss single-handedly doomed Conservatives. If you doubt that assessment (i.e., if you’re a Truss apologist) I don’t have to debate the point with you. Voters will deliver a verdict at some point later this year. It’ll be decisive.
Jeremy Hunt was on duty with the usual spin. “As inflation gets closer to target, that opens the door for the Bank of England to consider” rate cuts, he said Wednesday. “That brings down mortgage rates. That makes a very big difference.”
