FTSE jumps as pound slumps on surprise inflation fall

FTSE jumps as pound slumps on surprise inflation fall”

Consumer prices rose 2.5% from a year earlier, down from 2.7% in February, the Office for National Statistics said on Wednesday.

Thomas Wells, manager of the Smith & Williamson Global Inflation Linked Bond Fund, said: "UK inflation has eased from the high levels seen in the fourth quarter, and we expect headline inflation to moderate further in the second half of the year, slowly moving back towards target, although the actual glide path from here will depend on what the Bank of England does with the Bank Rate".

With wages rising to 2.8% in the three months to February and unemployment falling, inflation could head higher and many experts still think the Bank is likely to raise rates now to counter that. Earnings grew 2.8 per cent while inflation dropped to 2.7 per cent.

Inflation has fallen unexpectedly to its lowest level for a year, easing pressure on the Bank of England to raise interest rates.

The ONS said the increase reflected a rise in the price of crude oil.

The British currency GBP=D3 slid 0.8 percent to $1.4173 in London trading, its lowest since last Thursday and a striking reversal from Tuesday climb to $1.4377, its strongest since the Brexit referendum.

"While the next Bank of England rate rise is imminent, many are still questioning whether consumers will actually see any benefit, particularly as several of the banks failed to pass on the rise from late a year ago".

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Month on month, CPI was up just 0.1%, short of forecasts for a 0.3% rise and down from the 0.4% gain in February.

Yesterday we had wage stats, today it's inflation stats.

Based on the ONS's preferred CPIH measure of inflation, which takes more housing costs into account than the CPI used by the BoE and government, pay growth edged ahead of inflation for the first time in nearly a year.

While the United Kingdom has been an outlier, with inflation hitting 3% in recent months, Mr Grogan said today's figures surprised the market.

At the pumps, motorists also faced lower fuel costs last month, with petrol down by 1.6p per litre on the month to 119.2p per litre.

While noting the role of clothing costs to reducing inflation, the economics research firm added that at the same time 'other components of core goods inflation also declined, suggesting that retailers as a whole have largely finished passing on higher import prices to consumers'.

Looking at past MPC decisions, Prof Costas Milas of the University of Liverpool, noted that in July 2007 the committee voted for a hike (to 5.75%) despite CPI inflation recording three successive falls from 3.1% in March 2007 to 2.8% in April, to 2.5% in May and to 2.4% in June 2007.

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