UK Annual Inflation Rate Softens from 3.4% to 3.2% in March 2024

UK Consumer Price Inflation Report for March 2024

On Wednesday, UK inflation figures for March garnered investor interest.

The UK annual inflation rate softened from 3.4% to 3.2%, with core inflation declining from 4.5% to 4.2%. Economists forecast annual and core inflation rates of 3.1% and 4.1%, respectively.

Month-on-month, consumer prices advanced by 0.6% after rising by 0.6% in February. Economists expected consumer prices to increase by 0.5%.

According to the Office for National Statistics,

The Consumer Prices Index, including owner-occupier housing costs (CPIH), rose by 3.8% in 12 months to March. (Feb: +3.8%).

• Food and non-alcoholic beverage prices made the largest downward contribution to the CPIH annual inflation rate. The 12-month rate eased from 5.0% (Feb-2024) to 4.0% (Mar-2024).
• Five divisions made downward contributions in total, including clothing and footwear.
• Prices for clothing and footwear advanced by 3.9% in the 12 months to March 2024 (Feb: 5.0%).
• Housing and household services made the largest upward contribution. The 12-month rate increased from 2.9% (Feb-2024) to 3.1% (Mar-2024).
• Three divisions made upward contributions in total, including alcohol and tobacco.
• Prices for alcohol and tobacco increased by 11.9% in the 12 months to March 2024 (Feb: 11.8%).

The Consumer Prices Index, including owner-occupier housing costs (CPIH), increased by 0.6% in March 2024 compared with a 0.7% rise in March 2023.

Bank of England Monetary Policy Implications

The hotter-than-expected UK inflation figures contrasted with forward guidance from Bank of England Governor Andrew Bailey. On Tuesday, Governor Bailey hinted that the BoE could cut interest rates before the US Federal Reserve. Sticky inflation numbers could further delay BoE discussions about interest rate cuts.

GBP/USD Reaction to the March UK Inflation Report

Before the UK inflation report, the GBP/USD rose to a high of $1.24398 before falling to a low of $1.24169.

However, in response to the March inflation numbers, the GBP/USD rose from $1.24412 to $1.24445.

On Wednesday, the GBP/USD was up 0.14% to $1.24429.

Up Next

Inflation figures for the Eurozone will give investors further clues on inflation trends going into the second quarter. According to preliminary numbers, the annual inflation rate for the Eurozone eased from 2.6% to 2.4% in March.

However, FOMC member commentary also warrants investor attention. FOMC members Michelle Bowman and Loretta Mester are on the calendar to speak on Wednesday. After Fed Chair Powell’s comments on Tuesday, support for delaying interest rates until Q4 could spook the markets.