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Investors are preparing for a potential surge in UK inflation in April, which could pose a challenge to the Bank of England’s plans to lower interest rates.
Forecasts suggest that annual consumer price inflation could reach 3.3 per cent last month, up from 2.6 per cent in March. This increase is attributed to various factors including higher national insurance contributions, utility bills, taxes, and US import tariffs.
Services inflation, a key indicator for the Bank of England, is expected to rise to 4.9 per cent in April.
Rob Wood, Chief UK Economist at Pantheon Macroeconomics, stated, “The UK is heading towards a period of sustained CPI inflation above 3 per cent.”
The Bank of England has cut interest rates four times since 2024, but concerns about rising inflation may limit further cuts.
Sanjay Raja, an economist at Deutsche Bank, noted that April’s inflation figures will be a significant test for the Bank of England this year.
Market expectations currently anticipate one or two quarter-point rate cuts by the end of the year.
Uncertainty surrounds the data due to various price changes last month. Speeches by BoE policymakers later in the week will provide more insights into the implications for borrowing costs.
Separate data on retail sales will also be released to assess the impact of rising prices.
Economist Ellie Henderson expects a 0.3 per cent month-on-month rise in retail sales, supported by factors such as the national living wage increase and favorable weather conditions.
US Companies’ Response to Tariffs
Business activity data will shed light on how US companies are adapting to the changing tariff environment.
S&P Global will release the latest purchasing managers’ index data, reflecting business activity levels from early to mid-May.
Economists predict a slowdown in manufacturing and services PMI figures compared to the previous month.
Manulife John Hancock Investments strategists emphasize the importance of monitoring global manufacturing trends for future growth projections.
RBA’s Rate Decision
The Reserve Bank of Australia is expected to announce a rate cut at its upcoming meeting, with markets closely watching policymakers’ outlook.
Citi’s Ben Wiltshire anticipates a rate cut but suggests that markets may be underestimating the possibility of a hold.
Rabobank’s Jane Foley believes that faster wage growth data could influence the RBA’s decision-making process.