Aberdeen: Relief in UK over drop in inflation
Luke Bartholomew, Deputy Chief Economist at Aberdeen, comments on the UK inflation figures that were announced this morning:
'Both the Bank of England and the Chancellor will be somewhat relieved by the drop in headline inflation. Though inflation is still running well ahead of target and is still likely to increase later this year. So this report does not fundamentally change the outlook for inflation, but it should keep the path clear for another interest rate cut in May.
In the meantime, slightly lower inflation should also mean less pressure on gilt yields, which remain a major concern for the Chancellor as she prepares for her Spring Statement later today. While the broad contours of that announcement are well understood, the market reaction will likely turn on how much the spending reductions are front-loaded versus back-loaded, with back-loaded cuts more likely to stretch credibility and risk a more adverse market move.'