Goldman Sachs is out with its near-term forex outlook
Investing.com - U.K. inflation cooled slightly in May on an annual basis, according to data released earlier Wednesday, but remained above the Bank of England’s medium term target ahead of its policy-setting meeting later this week.
Annual consumer price inflation rose 3.4% in May, a small drop from the 3.5% seen the prior month, but still ahead of the U.K. central bank’s 2.0% medium-term target.
The monthly rate rose 0.2%, with the rate of increase slipping back from the hefty 1.2% gain seen in March.
Analysts had expected the CPI to rise 3.3% on an annual basis, and 0.2% on the month.
Core CPI, which excludes volatile energy and food prices, rose 0.2% on a monthly basis, with the annual rate at 3.5%, dropping from 3.8% in the prior month.
April’s figure was elevated by the impact of increased employer costs, such as higher minimum wages and National Insurance payments, and the impact of these factors are expected to fade over time.
“Household finances are under renewed strain,” said Rob Morgan, chief investment analyst at Charles Stanley. “Although average wages have been trending higher, mounting expenditure on bills and groceries, plus higher mortgage costs for many thanks to higher interest rates, means extra income is typically spent on essentials rather than saved.”
“While services inflation stands to remain elevated in the short term thanks to increased employer costs, it is a factor that should fade as the months roll by as companies scale back hiring and restrain pay where possible,” added Morgan.
That said, the British public’s expectations for inflation over the medium term remained at their highest in several years although short-term expectations fell, according to a Bank of England survey published late last week.
May’s survey showed expectations for inflation in five years’ time held at 3.6%, unchanged from February’s reading which was the highest since November 2019.
Expectations for inflation in one to two years’ time remained 3.2%, the highest since November 2022, while expectations for one year’s time dropped to 3.2% from 3.4%.
The Bank of England holds a policy-setting meeting on Thursday, and is widely expected to hold interest rates unchanged, having cut its key base rate by 25 basis points to 4.25% at the start of May.