U.K. inflation slowed more than economists forecast in April to a seven-month low and producer prices rose the least since 2009 as fuel costs fell.
Consumer prices rose 2.4 percent from a year earlier, down from 2.8 percent in March, the Office for National Statistics said in London today. The median forecast of 35 economists in a Bloomberg News survey was 2.6 percent. Core inflation also cooled, while factory-gate prices increased at the slowest annual pace in 3 1/2 years. The pound weakened.
The Bank of England lowered its forecasts for inflation last week and said price growth may hit its 2 percent target earlier than previously estimated. The central bank, which also raised its growth projections, kept its bond-purchase program at 375 billion pounds ($569 billion) this month. Minutes of the decision to be published tomorrow will show whether Governor Mervyn King continued his bid to boost quantitative easing.
“Looking to short-term inflation in the U.K., it is still likely to move higher in subsequent months,” said David Tinsley, an economist at BNP Paribas SA in London. Still, the data “support our view that inflationary pressures are set to wane due both to lower imported price pressures and because domestic cost pressures are subsiding.”
The pound extended its decline against the dollar after the data, falling toward a six-week low. It was trading at $1.5173 as of 11:05 a.m. London time, down 0.5 percent from yesterday. Against the euro, it weakened 0.5 percent to 84.82 pence.
Transport costs subtracted 0.3 percentage point from the annual inflation rate. The majority of that came from gasoline, the statistics office said. Today’s figures are “good news for families and businesses,” with inflation down by more than a half from its peak of 5.2 percent in September 2011, the U.K. Treasury in London said in a statement.
Core inflation, which excludes food, alcohol, energy and tobacco, slowed to 2 percent, matching the Bank of England’s overall goal for consumer-price growth, according to the statistics office. That’s the least since November 2009.
Retail-price inflation, used in wage negotiations and as a basis for the inflation-linked bond market, was at 2.9 percent, the lowest since September. It was the same excluding mortgage interest payments.
The BOE sees inflation peaking at 3.1 percent in the third quarter of this year, lower than it forecast in February. It says annual price gains will slow to below its 2 percent goal in the third quarter of 2015, compared with an earlier projection for the first quarter of 2016.
Still, inflation has been above target for more than three years, and the Ernst & Young Item Club said yesterday that this has been “very damaging for the U.K. economy.” Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, said today that market conditions are “challenging.”
In a separate report, the statistics office said factory-gate prices fell 0.1 percent in April from March and rose 1.1 percent from a year earlier. Core output prices rose 0.1 percent on the month and 0.8 percent on the year. Input prices fell 2.3 percent from March and 0.1 percent from a year earlier.
Easing inflation pressures may give the BOE more scope to add to quantitative easing if policy makers decide more stimulus is needed. King is due to retire next month and will be replaced by Bank of Canada Governor Mark Carney, who has said central banks aren’t “maxed out.”
“A 2.4 percent outturn ‘feels’ much less problematic than 2.8 percent and presents a more favorable backdrop for Mark Carney should he be inclined to push for more aggressive monetary activism,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London.
Alan Clarke, an economist at Scotiabank in London, also said inflation is “no longer an obstacle” to the BOE doing more QE, though they may be less inclined in that direction after raising their growth projections this month. The central bank sees the economy growing 0.5 percent this quarter after 0.3 percent expansion in the three months through March.
“At this point what would cause them to pull the trigger is a disaster on growth, and we’ve been getting better news there,” he said.
In another report today, the ONS said annual U.K. house-price inflation accelerated in March to 2.7 percent from 1.9 percent in February. In London, prices increased 7.6 percent from a year earlier.
Separately, the Bundesbank said Germany’s recovery will gather pace in the current quarter after an exceptionally long winter damped growth at the start of the year.
“Economic activity is expected to improve markedly,” the Frankfurt-based central bank said in its monthly report. There is likely to be “catch-up effects in response to the weather-related downturn in construction activity during last winter.”