Market Report - 17/04/2024
Pound rises after inflation falls less than forecasted ; Market awaits Eurozone inflation final estimate
The Office for National Statistics have this morning released their latest inflation report, announcing that the consumer price index has now dropped to its lowest level since September 2021 to 3.2% for March, down from 3.4% in February.
Despite inflation moving closer to the Bank of England’s 2% target, the latest reading came in higher than forecast as a drop to 3.1% had been expected by economists. Although inflation has fallen, prices are rising at a slower rate than recorded in previous months with wages still on the rise as reported this morning. Food price inflation is now at its lowest levels since November 2021 and was the largest downward contributor to the monthly drop, meanwhile fuel prices have risen faster than previously recorded.
Following this morning’s news of a drop in inflation, investors are now adapting forecasts for the predicted amount of rate cuts in 2024. The Bank of England is actively looking for further signs that services inflation has weakened, as it weighs up when it can begin to lower UK interest rates from the existing 16-year high. Unfortunately for lenders, some investors are predicting that the first rate cut this year will not arrive until November. A September cut was previously anticipated and could still be the case depending on data in coming months. Reuters reported that UK rate future prices are now expecting around 34 basis points of cuts to the Bank rate this year, which is down from 42 basis points predicted in the previous 24 hours.
Off the back of the news this morning, the Pound has reacted positively with a upward shift of around 0.3% versus the US dollar and a smaller lift of 0.2% against the Euro. Despite this, the Pound is still down over 1% for the month of April following the unexpected US inflation rise for the month of March. Elsewhere in the UK today, house price and rental data is due for release at 9:30am.
The main event in Europe today is due at 10am UK time where the final estimate for the Eurozone inflation report for March is released. There is growing speculation that the European Central Bank will commence rate cuts as soon as June this year after Christine Lagarde suggested in an interview this week that cuts are now imminent. Lagarde added that the influence of geopolitical events on commodity prices had been limited to date. This could well change as tensions grow.