This week’s data shows that UK headline inflation in March was much lower than expected, coming in at 2.6%. As a result, most analysts and economists are scratching their heads at this unprecedented figure. The monthly inflation rate was supposed to be 3% according to an earlier forecast by the Bank of England. At first, there was some relief about inflation. Forecast estimates indicate that it may rocket up to 3.5% or even more in the second half of this year.
Even the Bank of England’s worst case inflation disaster scenario in August turned out too pessimistic. Yet even as March’s results have mitigated short-term concerns regarding inflation, given the current inflation dynamics, services inflation is about to start falling sharply. The services sector is still under a lot of pressure with services inflation still persistently at 4.7%. The April annual price resets will heavily influence some segments of the service-sector basket more than others. This is a significant change, and stakeholders need to pay attention.
Households’ energy and water bills are about to increase. This increase will have a huge effect in increasing the CPI (consumer price index) and be a major part of the expected inflation. Household energy bills are scheduled to increase. This surge is likely to contribute an additional 0.8 percentage points to April’s year-over-year CPI figure versus March. Even without considering the effect of this increase, we are projecting the CPI to be about 3.2% for the month of April.
Energy bills have been a major drag on overall inflation of late. This month, the sudden increase in water bills underscores another aspect that should weigh heavily in the balance. These three factors, when taken together, are expected to make for a significant rise in the headline inflation rate by the middle of the year.
The crypto market, meanwhile, has joined much of the rest of the economy in a steep downturn. Total cap has taken an absolute sinking and is down 3.2% to just shy of $2.736 trillion. Analysts emphasize that this contraction is due in large measure to the continuation of the Trade War with China’s persistent hostility. These frictions have held back significant advancement in our economy, environment, and energy sectors.
The Bank of England is preparing the ground for a more hawkish monetary policy shift. That groundwork has been laid under the backdrop of a changing inflation forecast. The firm expects the central bank to make one of those cuts per quarter in 2025 and continuing into 2026. These are inflation-fighting measures to offset the impact of persistently high inflation and restore orderly growth.