UK headline CPI rose 2.8% year on year in April, down from 3.3% in March, and below the 3.0% forecast. Inflation remained above the Bank of England’s 2% target.
Core CPI rose 2.5% year on year, down from 3.1% in March and below the 2.6% forecast. Monthly CPI was 0.7% in April, unchanged from March and below the 0.9% consensus.
Market Reaction And Policy Focus
After the release, GBP/USD was 0.10% lower at 1.3381. The numbers may affect expectations for the Bank of England’s June decision.
A preview had pointed to annual CPI easing to 3.0% in April, with monthly CPI seen at 0.9%. Core CPI had been expected at 2.6%, and producer prices were forecast at 1% for PPI input (from 4.4%) and 1% for PPI output (from 0.9%).
The Bank of England expects consumer inflation to peak at 4% later this year. Ofgem is due to revise the energy price cap in July, which may feed into headline CPI.
The latest inflation data shows a mixed picture for the UK economy. Headline CPI has fallen to 2.8%, which is an improvement, but it remains well above the Bank of England’s 2% target. The softer core inflation reading of 2.5% suggests some underlying pressures might be easing, creating uncertainty for what comes next.
Sterling Outlook And Volatility Strategy
For us, this reinforces the view that the Bank of England will remain on hold in the coming weeks. With the UK’s base rate currently at 5.25% since August 2023 and services inflation still proving sticky around 5.9%, this CPI print isn’t soft enough to trigger an immediate rate cut. Therefore, we should not position for any imminent dovish shift from the central bank.
This environment suggests the Pound Sterling will likely trade within a range. The GBP/USD falling to 1.3381 on the news shows that the market sees little reason for significant sterling strength right now. We can use options strategies, like straddles, to trade this expected sideways movement while also being positioned for a breakout on the next major data release.
Looking ahead, we must be aware of future volatility triggers mentioned, such as the Ofgem energy price cap revision in July. Recent data has also shown that while unemployment ticked up to 4.3%, wage growth remains robust, which complicates the inflation outlook for the Bank of England. This tension between slowing headline inflation and persistent domestic price pressures is a recipe for sharp market moves later in the summer.
We can draw parallels to the period in 2023 when the market was constantly repricing the peak for interest rates based on every new data point. Now, the uncertainty revolves around the timing of the first rate cut, making derivatives tied to the BoE’s meeting dates particularly active. Positioning for increased volatility around those key events seems to be the most sensible approach.
