Inflation falls but UK’s path still uncertain

Headline UK consumer price inflation (CPI) came in below expectations at 2.8% in April. While inflation is forecast to rise sharply in the coming months, the energy price cap has helped absorb the worst of the shock from the Middle East conflict so far. This morning’s news followed a surprise, albeit small, increase in unemployment that further muddied the waters around the Bank of England’s next interest rate decision (18 June).

Sterling has gone through a difficult phase over the past few weeks. From politics to the economy, the questions are mounting up, increasing the stakes as we head towards some more key data to close out the week. The pound did strengthen by close to half a cent against the euro yesterday, completing a sharp recovery of more than a cent since the start of the week.

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Donald Trump once again gave sharply mixed comments that spooked oil markets. The US may be forced to strike Iran again, the president said on Tuesday while also claiming the regime was begging to do a deal. The key brent crude index hovered around $110 per barrel on Tuesday, almost double where it had started March.

All the drama around the war has had a chilling impact on global economies and prompted concerns of fuel shortages and major disruption. Government bonds are currently bearing the brunt of the anxiety, with American borrowing costs rising to their highest level since the financial crisis yesterday.

The UK political scene was able to tear itself away from the Labour psychodrama on the news that HS2, the much vaunted and much delayed high speed rail project, would not fully open until the 2040s and would cost the taxpayer upwards of £100bn. The government had already increased the projected cost and scrapped the y-shaped fork that would serve both Manchester and Leeds.