LIVE BUSINESS: CPI plummets to 2.3%; M&S profits soar to £716m; Citigroup fined £62m in UK

Neil Birrell, Chief Investment Officer at Premier Miton Investors:

‘UK inflation is following the trend elsewhere and is proving more resilient than expected.

‘The target is not being re-hit as quickly as the Bank of England would like, which is likely to delay the first interest rate cut.

“The services sector has proven to be the sticking point and will remain the bank’s focus for the next month or two, ahead of a possible rate cut in the summer.”

Daniel Casali, chief investment strategist at Evelyn Partners:

‘While the inflation data surprised on the upside, the general downward trend in inflation is intact. This raises the possibility that the Bank of England (BoE) could still cut its base interest rate at its next interest rate-setting meeting in June. Although now it is a difficult decision.

‘According to the data, the big drop in inflation was due to a 12% drop in the Ofgem dual fuel price cap on household energy bills. Since the energy price cap occurs every three months, the next change would not be until July. However, Ofgem would probably make an official announcement in a couple of weeks to warn of an upcoming change.

‘Based on current market prices, Barclays estimates that the energy cap could be reduced by a further 6-7%. If realized, this would imply greater downward pressure on the household energy portion of CPI inflation.

‘Apart from energy prices, the slowing trend in core CPI inflation is intact. Leading indicators, such as producer price inflation, are also declining. Additionally, cost-driven inflation from wages that fuel the service sector is also slowing. Recently announced labor market data showed that annual private sector wage growth slowed to 5.9% in March, from a peak of 8.2% in June 2023.

‘So, although headline CPI inflation of 2.3% is higher than the Bank of England’s forecast of 2.1% in April, an interest rate cut at its June 20 meeting is a clear possibility , since the data does not show that the economy is overheating.

‘However, before that meeting there will be one more CPI release to get the majority of Monetary Policy Committee (MPC) members to favor an interest rate cut. The MPC will also consider that wage growth (although slowing) remains high. However, it will be encouraging for the MPC that the drop in job vacancies points to lower wages in the coming months.’

Consumer price inflation fell to 2.3 percent in April from 3.2 percent the previous month, reflecting changes to the energy price cap and increasing pressure on the Bank of England to begin to cut interest rates.