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UK April Inflation slips

• Posted by Shyam Gokani in Bank of England, Brexit, Currency, Dollar, Economy, EUR, GBP, Mark Carney, Sterling, UK
• May 17, 2016
• No Comments

British inflation slipped in April for the first time since September last year, reflecting a drop in airfares after a March surge around the Easter holidays disappeared, as well as lower clothing prices.

Consumer prices rose 0.3 percent compared with a year ago, the Office for National Statistics said, in line with a Bank of England estimate last week but below economists’ expectation for inflation to remain at 0.5 percent.

British inflation has been below the BoE’s 2 percent target for more than two years and last year it was zero, the lowest since comparable records began in 1950.

The BoE forecast inflation would stay below 1 percent until the tail end of this year and to undershoot its target until 2018, due to the global slump in oil prices, the effect of past rises in sterling and lacklustre wage growth.

But the dip in consumer price inflation is likely to be short-lived.

Fears that a weakening global economy and sharp stock market falls might sap the strength of Britain’s moderate domestic recovery mean few economists expect the BoE to raise rates before early next year.

Many in financial markets think it could take much longer, and see a small chance that the BoE could instead be forced to cut rates below the record-low 0.5 percent where they have languished for almost seven years – especially if Britons vote to leave the European Union in a June 23 referendum.

Two surveys last week suggested British shoppers held off from buying new spring and summer clothes during an unusually cold April, compounding a sense of uncertainty among consumers ahead of the EU referendum.

Before the negative inflation data this morning, Sterling hit a 2-1/2-week high against the euro and climbed almost 1 percent to trade above $1.45, after a couple of polls showed the “In” camp well ahead in the run-up to Britain’s June 23 referendum on European Union membership.

According to the latest poll from ORB for the Telegraph newspaper, the “In” camp held a 15-point lead over its “Out” rivals. Those wanting Britain to stay in the EU also held an eight-point lead in an ICM poll for the Guardian newspaper on Monday, though another poll showed the “Out” camp in front.