The UK government has been on a run of good news lately with trade deals signed with the US, India and the EU in the past fortnight and last Thursday’s above expected GDP growth. However, this morning’s inflation data has brought a wrinkle to that fortnight of positivity.
The UK’s Office for National Statistics revealed that inflation rose more than 3.5% in April, above even the 3.3% predicted by analysts. The increase was pushed by the bundle of price hikes that saw the month dubbed ‘Awful April’ – water bills, energy costs, council tax and transport fares all jumped at the start of the new tax year.
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While the Bank of England predicted inflation could reach as high as 3.7% by September before trending downwards to 2%, the above-expected numbers put extra pressure on the Bank’s upcoming Interest Rate decisions. Just yesterday, the Bank of England’s chief economist Huw Pill warned the Monetary Policy Committee was cutting rates too quickly and not rigorously tackling inflation.
The result of this news is that the Bank of England may now slow the pace of its interest cuts, which were otherwise predicted to be by as much as 0.5% by the end of the year.
There is more uncertainty over the Atlantic, where, on Tuesday, US President Donald Trump visited Congress to put pressure on Republican lawmakers to pass his “big, beautiful bill” that will extend the tax cuts he passed in 2017 and reduce government spending further.
It’s unclear whether the bill will pass and what impact it would have if was ratified and this may be behind the dollar’s decline this week. After all, the push to cut taxes comes days after Moody’s downgraded the US’s credit rating to AA1, increasing the government’s borrowing costs.
While the euro is having a good week, climbing over the dollar and pound, it’s not linked to any major positive economic data release or policy announcement. It may well have been its relative stability compared to GBP and USD that attracted traders.
This has been a particularly tumultuous year for the economy and there’s little sign it’s going to become any more predictable.
