LIVE MARKETS-Hot UK inflation: not as bad as it looks?

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HOT UK INFLATION: NOT AS BAD AS IT LOOKS?

UK inflation has jumped to its highest reading since January 2024, but some of those crunching the numbers say it's not as bad as it first appears.

Bets on a cut at the BoE's June meeting have been wiped out. As of Wednesday at 1137 GMT, traders are pinning a 91% chance of no change when just yesterday they were overwhelmingly expecting a 25 bps cut IRPR.

Bruna Skarica, chief UK economist at Morgan Stanley summed the reading up: "Not Great, Not Terrible", she said.

While inflation beat consensus - pushed higher by vehicle excise duty and package holidays - goods were weaker than expected and a measure of underlying services inflation went down, wrote Skarica.

"This really was a much better print than it looks at first. We look for the next cut in August."

A perfect storm of price pressure is how Dani Stoilova, UK economist at BNP Paribas Markets 360 described it, though she adds the headline inflation rate is less alarming than it first appears because of the one-off nature of some price increases.

"...it is the risk of entrenchment through the disanchoring in inflation expectations and second-round effects that we think will ultimately keep the BoE cautious," she wrote.

Neil Wilson, UK investor strategist at Saxo Markets highlighted the fact that household bills seem to be a main contributor to higher CPI.

The effect of household bills swung from a –0.7% to a +1% drag on the annual inflation rate which hit 3.5% in April

This "indicates a big shift in the base effect, which will be comforting to the Bank of England".

(Lucy Raitano)

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