LONDON: The pound hit its highest in three years on Wednesday, catching a brief lift from data that showed UK consumer inflation picked up faster than expected in April, which reduces the Bank of England's ability to quickly cut rates to protect growth.
Consumer prices rose at a rate of 3.5% in April from 2.6% in March, the Office for National Statistics said, the highest since January 2024 and the largest increase since 2022 when inflation was rocketing.
Sterling rose as much as 0.58% to $1.347, its highest since February 2022, although it was broadly steady against the euro, trading at 84.325 pence.
UK finance minister Rachel Reeves said she was "disappointed" by the data. "I know cost of living pressures are still weighing down on working people," she said in a statement.
A Reuters poll of economists had pointed to a reading of 3.3% in April while the Bank of England earlier this month projected inflation of 3.4%.
There had been an expectation for a sharper pick-up in prices last month, thanks to increases in water, gas and electricity bills. A rise in air fares contributed to the hot data print, the ONS said.
Worryingly for the BoE, services inflation, which captures domestic price pressures, rose by 5.4% in April, above even the highest forecasts in a Reuters poll for an increase of 4.8% and beyond the BoE's forecast for a reading of 5% last month.
Wednesday's data will add to unease among Monetary Policy Committee (MPC) members over the outlook for Britain's economy, which grew strongly in early 2025 but is likely to slow in the second half of the year.
However, many of April's price increases were seen as one-offs, meaning pressure should gradually subside, even though U.S. tariffs are in effect, analysts said.
"Big picture, this is not the end of a quarterly cutting cycle - not yet at least," Deutsche Bank chief UK economist Sanjay Raya said.
"While the bar may be higher for an August rate cut than previously thought, it's likely that the majority of the MPC will look past this if inflation expectations start to recede... the labour market continues to loosen as we expect, and pay settlements continue to come in lower."
UK interest rate futures showed traders are pricing in just 35 basis points in rate cuts from the BoE between now and the end of this year. - Reuters
