Inflation vs Inflation
If you cast your mind back to late 2024 I’m sure your first thought will be inflation back below the Bank of England’s 2% target. Since then the Bank has still proceeded with two modest interest rate cuts. With UK headline inflation being read at 3% yesterday, is inflation rearing its ugly head once again in the UK? As ever, yes and no is the answer. Seasonal and historical effects were expected to allow inflation to rise before peaking in the middle of this year. Therefore, rising headline inflation is not necessarily indicative of sustainable and therefore concerning inflationary pressures in the UK economy.
A reading of 3% in headline inflation was admittedly above expectations. As had been expected, energy prices and grocery prices were largely to blame for this overshoot. Services inflation however, that which markets and the Bank of England have long been more interested in, undershot the forecast. The level of annual services inflation is still elevated – the statistic was read yesterday at 5% versus a forecast of 5.2%. Overall yesterday’s publication of UK price data paints a picture still commensurate to falling inflation in 2025.
A hot headline inflation publication was therefore unable to support GBP. As yesterday’s session progressed cable lost its grip on 1.26 as the Dollar gained ground across the board. Whilst markets remain sensitive to incoming data and broader risk sentiment, yesterday’s publication should not provide upward pressure to UK yields. The BoE’s own forecasts remain highly conservative on inflation meaning that if anything GBP could expose downside risks if we see revisions lower in core and services CPI in the coming months.
Discussion and Analysis by Charles Porter
Related Insights
Daily Brief – Missing haven
Charles Porter
Tue 7 Apr 2026
Missing haven At the start of the year, the Franc had performed well as a safehaven. As a result of political and economic developments in Japan, the Yen was not abiding by its usual safehaven form. Therefore, defensive plays within FX only had two credible places to go: the US Dollar or the Swiss Franc. […]
Daily Brief – Battle of the banks
Charles Porter
Thu 2 Apr 2026
Battle of the banks Market volatility continues amidst unclear messaging from both sides of the conflict in Iran. The President’s position has continued to flit between seemingly concrete positions of absolutely tangible progress and bombing the nation back ‘to the Stone Ages’. Since the start of the war, smarter money has acknowledged that predicting the […]
Daily Brief – Questioning Truth
Charles Porter
Tue 24 Mar 2026
Questioning Truth Adopting the same handle as his now rather redundant X account, @realDonaldTrump shocked markets yesterday using his own social media platform, Truth Social. During Trump 1.0, the legitimacy of a President using an unofficial X, then Twitter, account was questioned. Now under Trump 2.0, it’s seldom questioned when he is the majority shareholder […]
