UK Inflation at 2.5% And Below Wage Growth But Steep Fall Spooks Markets

Market Analysis /
18 Apr 2018

Today’s UK inflation data took on much more importance after yesterday’s UK jobs report as today’s reading confirmed that we have now seen wage growth outstrip inflation for the first time in more than a year. The long lasting inflationary effect of the EU referendum is starting to fade away, however the lower reading shows that pressure remains on the UK high street, but the improvement in the wage arena cannot be ignored.

The two readings over the last couple of days are of slightly more importance due to the prospect of a Bank of England rate hike at the next meeting on May 2nd. A reading below that of the average hourly earnings yesterday at 2.8% means that wages are higher than inflation, meaning that it makes it easier for the Bank of England to raise debt payments. However the fact that the inflation number has fallen much quicker than expected, and has shown that despite the extra money in people’s pockets the high street remains under severe pressure. This is the first time inflation has fallen in two consecutive months since 2015. The pace of the fall in inflation has caused the probability of a rate hike in May to drop from 87% to 86.2%.

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