United Kingdom: Softer inflation but policy risks – Rabobank

Rabobank's Head of Macro Strategy Elwin de Groot highlights that United Kingdom (UK) Consumer Price Index (CPI) inflation for April undershot consensus, with services inflation easing, while UK Producer Price Index (PPI) surprised to the upside. He stresses that UK labour market slack is increasing and wage growth is slowing, yet a symbolic Bank of England (BoE) rate hike cannot be ruled out as policymakers reinforce their inflation-fighting credentials.

Soft CPI, firm PPI complicate BoE

"UK CPI inflation numbers for April came in below consensus this morning, led by a fall in services inflation but UK PPI surprised on the upside."

"In the UK, unemployment has moved back to around 5%, vacancies have dropped to a five-year low, and wage growth continues to slow."

"As Stefan Koopman, our UK analyst, notes, these are not the conditions of an overheated economy requiring aggressive monetary tightening."

"In the UK, for instance, a symbolic rate hike cannot be ruled out, as policymakers seek to underscore their commitment to the inflation target, even if the case for a full tightening cycle remains weak."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)