UK Inflation drops unexpectedly

UK inflation dropped to a one year low, according to figures which now raise doubts about a rate rise in May and further rises going forward.

There is still a 96% chance of a UK rate rise in May and we believe this is already priced into the markets.

Official data showed annual consumer price inflation fell to 2.5 percent from 2.7 percent in February.

For the first quarter, annual inflation averaged 2.7 percent – somewhat below the forecast of 2.92 percent that the BoE made in February.

As soon as the data was released at 9:30 GMT we saw the pound drop against major currencies by at least 0.5%

Sterling has recovered some of its value in recent months. That should help to ease some of the inflation pressure which has hurt the spending power of many households.

Overall wage growth in the three months to February was steady at 2.8 percent – just behind the rate of inflation over the period.

The Bank of England expects wages to grow more quickly than inflation later this year.

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