News that UK inflation had fallen by less than expected in March helped boost the pound on Wednesday.
The pound rose by about half a cent against the US dollar while trading in a tight range against the euro. EUR/USD had a slightly improved day but remains around its lowest levels in six months.
Before the inflation figures were published, Bank of England (BoE) governor Andrew Bailey said that the UK was on the right path to interest rate cuts. Whether Mr. Bailey felt quite so sure this morning is another question, but it is true that if inflation carries on its current trajectory, the BoE will meet its 2% target before too long.
That didn’t stop markets from having another rethink about the timeline for cuts. It’s remarkable that just a 0.1% miss on inflation figures would prompt a change in tact, but markets are indeed pricing in fewer cuts in 2024 now than they were earlier in the week.
The International Monetary Fund (IMF) threw a spanner in the works of Conservative election plans. The fund warned that the UK was one of four developed economies that “critically need to take policy action to address fundamental imbalances between spending and revenues.” Bad news for Jeremy Hunt, who is thought to be considering another round of tax cuts.
As part of its broader report, the IMF said that the world faced widespread “fiscal loosening” this year. Part of its rationale for this statement are the slew of global elections, which are usually associated with tax breaks as governments look to make their case to voters.
Eurozone inflation was confirmed at 2.4% in March’s final read. Core inflation was also confirmed at an annualised 2.9%.
US stock markets were in a much better mood yesterday. A string of solid earnings reports from airlines caused their stocks to rise while also propelling the S&P 500 and the NASDAQ into positive territory by the time European markets had left for the day.
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