The U.K. economy is unlike most European economies. It has an unemployment rate which is only bettered by Germany and it has no problem with deflation. It was also one of the first countries to get inflation back to within its central bank’s stated target range of 2%-3%.
The annual rate of U.K. consumer inflation fell again in March as price increases of women’s apparel, alcohol and tobacco slowed. Consumer price index (CPI) figures released by the Office of National Statistics (ONS) indicated seasonally-adjusted consumer prices rose by 0.1% over the month, which is less than markets expected and significantly lower than February’s comparable figure of +0.5%. On a 12-month basis, the consumer inflation rate fell back from 2.7% to 2.4% (seasonally adjusted).
Bond markets reacted by sending gilt yields and sterling lower. 5 year yields fell by 4bps to 1.14% and 10 year yields lost 2bps to 1.42%. In currency markets, sterling was around 0.6% lower against both the USD and the euro.
