UK inflation holds steady at 1.9% in March
By Michele Maatouk
Date: Wednesday 17 Apr 2019
(Sharecast News) - UK inflation unexpectedly held steady in March, according to data released on Wednesday by the Office for National Statistics, easing pressure on the Bank of England to hike interest rates.
The consumer price index came in at 1.9%, unchanged from February, below expectations for a rise to 2% and remaining under the BoE's 2% target for the third month.
Fuel and clothing prices saw the biggest increases, but this was offset by a drop in the price of recreational and cultural goods, food and motor vehicles.
Food inflation dipped to 0.8% from 1.1% in February, while energy inflation ticked up to 2.2% from 1.2%, driven by the recent recovery in motor fuel prices.
Meanwhile, core inflation - which excludes energy, food and alcohol prices - was unchanged at 1.8%, below consensus expectations of 1.9%.
Ben Brettell, senior economist at Hargreaves Lansdown, said the figures make the BoE's job somewhat easier, as there's no pressure to raise rates as it grapples with continued uncertainty over Brexit.
He said: "The Bank of England has been setting a neutral tone as Brexit approaches, with policymakers hamstrung by political uncertainty and a deteriorating global growth outlook. The Bank has said it thinks higher interest rates will be appropriate in the coming months, as it aims to keep inflation close to its long-term 2% target.
"Assuming - and it's a big assumption - that Brexit happens in a relatively orderly fashion, we could see rates gently nudge up later this year. If we leave with no deal, however, all bets are off. Inflation will spike as sterling weakens, but the Bank will probably cut rates regardless in a bid to support the economy."
ING analyst James Smith said whatever happens, the rest of this year looks set to be a fairly benign period for consumer price inflation, giving the BoE another reason to keep rates on hold for now.
"However, as we noted on Tuesday, wage growth has been a larger consideration for policymakers and has continued to perform strongly. Regular pay is growing close to its fastest rate since the crisis as skill shortages intensify, albeit there are some subtle signs that momentum has eased slightly in the more recent readings.
"Either way, this makes for a better fundamental backdrop for consumer spending. Household confidence has been depressed amid ongoing Brexit uncertainty, but the temporary reduction in noise over the next few weeks may help unlock some spending in bigger-ticket items - particularly given the warm weather expected over the critical Easter trading period."
RBC Capital Markets said March should have marked the last month of below-target CPI inflation for a couple of months at least.
"In April, the lifting of the Ofgem price cap on domestic utility bills should see CPI inflation return to above 2% year-over-year. Don't expect any of this to materially change the outlook for the BoE, however, whose hands are tied as long as the UK remains in its current Brexit limbo."
Other data released by the ONS showed that average house prices were up 0.6% in the year to February, down from 1.7% in January and marking the lowest annual rate of growth since September 2012.
London saw the lowest growth, with prices in the capital 3.8% weaker over the year to February, down from a 2.2% decline in January. The South East followed close behind, with prices there down 1.8% over the year.
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