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United Kingdom: Inflation Down, But Not Too Much

If the main inflation index falls, the rise in food and service prices remains very worrying and will not allow the Bank of England to end the cycle of policy rate hikes.

By EC Invest

For the first time since the summer of 2022, UK inflation fell below 10%, reaching 8.7% in April.

Good news at first sight, this development is likely to fail to reassure the Bank of England. And for a good reason: the underlying inflation, excluding energy and food, is in sharp increase, reaching 6.8%, the highest level in over 30 years (March 1992) when it was not...

Even more than elsewhere, the decline in energy, electricity and gas prices is responsible for the decrease in the main index. Again, a logical setback since London had decided to freeze gas and electricity prices. A freeze that ended at the end of April.

Therefore, even if hydrocarbon prices have fallen sharply, it would not be surprising if the United Kingdom experienced some turbulence on this front in the coming months.


Elsewhere, despite some signs of moderation, the United Kingdom starts with high prices. The price of non-alcoholic food and beverages rose another 19.1% - just below the 19.2% recorded the previous month.

Hence, if the underlying inflation peaks, it is mainly due to the substantial increase in the price of services (+6.9% over one year against 6.6% in March), driven by leisure, communications and transport prices.

These are signs of well-anchored inflation, which will not reassure the Bank of England. Given these figures, it should continue to raise key interest rates, which will undoubtedly support the pound, which is still slightly undervalued against the euro despite an excellent start to the year.

We continue to invest in the well-diversified London Stock Exchange, primarily composed of multinationals with little exposure to the British domestic market and cheaper than others.


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