U.K. Inflation slowed to the weakest in a year in March, raising questions about how quickly the Bank of England will raise interest rates.
Consumer prices rose 2.5 percent from a year earlier, up from 2.7 percent in February, the Office for National Statistics said Wednesday. This is less than estimated by economists and is below the recent BOE forecast of 2.8 percent for the same period. Core inflation cooled to 2.3 percent, also the lowest rate in one year.
The numbers may weaken the case for further interest rate hikes later this year. It is widely expected that policy makers will raise the benchmark a second time in six months at their meeting in May as inflation continues to exceed the 2% target.
Officials also said that they probably need to increase credit costs several times Over the next few years, domestic inflationary pressures will increase.
The pound fell on data, falling 0.7 percent to $ 1.4182 after 10:19 London time.
While next month's rate hike is still almost fully priced in by the market, traders now see a 40 percent chance of a follow-up in November, up from more than 50 percent earlier this week.
Read more: Investors cut bets on speed of BOE hikes
"The market is likely to question the likelihood of BOE rate hikes in the near future and later in the year," said Alan Clarke, an economist at Scotiabank , "Even if the MPC sees the low levels on this occasion and raises interest rates in May, this dilemma is likely to continue over the rest of the year."
For hawks at BOE, the labor market data published on Tuesday were released The unemployment rate dropped to its lowest level since 1975 and wages rose the fastest in nearly three years.
What our economists say
"An inflation deficit would clearly give food for thought to the central bank, but in order to dissuade the MPC from its current course, it should be considered beyond its political horizons, given the tense situation on the labor market, the With no signs of weakening, this remains unlikely and continues to suggest a further rate hike in November. "
for women's clothing, which rose more slowly than usual for this season the ONS. Also, alcohol and tobacco taxes did not increase as usual after the government changed the date of its annual budget announcement to fall.
Read about a surprising reduction in inflation in the euro area
Producer prices have fallen to their lowest level since 2016, mainly due to lower increases in food prices, the report said. Input prices rose 4.2 percent year-on-year in March, driven by higher crude oil costs.
ONS 'house price reading rose 4.4 percent in February, up from 4.7 percent in January. Prices in London fell for the first time since 2009.
– With support from Mark Evans, David Goodman and Harumi Ichikura