UK: April’s inflation decline has little implications on policy outlook - Lloyds

According to analysts from Lloyds Bank today’s report on inflation from the United Kingdom, that showed lower-than-expected numbers, has little implications for policy outlook.

Key Quotes:

“UK CPI inflation eased back in April to an annual rate of 0.3% from 0.5% y/y in March, below consensus expectations of an unchanged reading and our call for a milder dip to 0.4% y/y. The CPI ‘core’ rate (excluding energy, food, alcohol and tobacco) also fell back to 1.2% y/y from 1.5% y/y in March as the spike in airfares related to the timing of Easter unwound.”

“Though weaker than market expectations, the scale of the move was anticipated in the Bank of England’s May Inflation Report and, as such, has little implication for the UK policy outlook.”

“The fall in inflation in April comes despite the net positive effect of energy price movements.”

“Nevertheless, the biggest driver in April was the reversal of last month’s erratic surge in airfares, accounting for 0.15pp of the dip in headline inflation.”

“Overall, today’s outturns do little to change our view that the climb in annual inflation towards 1% by the turn of the year is still likely to prove stuttering. The ongoing recovery in oil prices, alongside the rise in import costs caused by the sterling’s recent weakness, will continue to provide impetus. As such, the dip this month is hardly representative of the likely direction over the coming months.”