UK headline inflation fell to 2.3% in April, a steep drop from last month’s 3.2% but on the higher end of the predicted range. The fall was driven by a significant reduction in the energy regulator Ofgem’s price cap, which led markets and economists to predict inflation could fall as low as 2.1%.
This morning, the pound shot up by nearly half a cent against the euro and the US dollar. This was likely a reaction to inflation staying slightly above expectations. However, it’s hard to see these levels holding too long given how close inflation is to returning below the Bank of England’s 2% target for the first time since April 2021.
UK public sector net borrowing meanwhile reached £20.5bn in April, more than the expected £19.3bn.
Sterling had yesterday reached several milestones against its peers. GBP/USD reached its highest in several months, while GBP/EUR briefly neared its highest since late April. There was however a little bit of a correction to those levels, and by the European close sterling had retraced its gains against both the US dollar and the euro.
The International Monetary Fund (IMF) has warned that the UK faces an almost £30bn gap in public finances in the coming years. According to the report, the IMF predicted that the UK will break its fiscal goals late in the decade due to more health spending and public investment. One nugget of good news did come of the report, with the fund predicting GDP would increase more than expected in 2024.
Over in the US, the Federal Reserve’s Chris Waller suggested he would like to see ‘several months’ of positive inflation figures to wave through interest rate cuts. Policymakers still stuck to relatively cautious remarks around rates, but that didn’t stop US stocks having a good day yesterday as the mood music starts to improve.
US Treasury secretary Janet Yellen urged the EU to join it in imposing tariffs on Chinese green energy technology. American trade policy has seen a shift to protectionism in recent years, and the US is hoping its allies will aid it in protecting Western industry.
Economic news was pretty thin on the ground elsewhere, but things could well pick up as the string of announcements increase in significance moving through the week.
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