U.K. Inflation Weakens in April

By Jon Sindreu and David Hodari
LONDON–Inflation in the U.K. edged down in April from a one-year high the previous month, underscoring the fact that
price pressures remain weak across the developed world.
Consumer prices rose 0.3% compared with the same month last year, the Office for National Statistics said Tuesday.
This was lower than March’s 0.5% increase and below what economists polled by The Wall Street Journal were expecting.
Nevertheless, the data underscores that inflation remains subdued in Britain and most advanced nations, despite a
recovery in the price of oil in the last three months. Cheap commodities in the international markets have been one of
the main factors pushing down prices during the last two years.
But recent official data also shows pay rises for British workers, a key measure of whether cost pressures are
building up in the domestic economy, have lost some of their strength since mid-2015.
In its last quarterly Inflation Report, published Thursday, the Bank of England acknowledged that inflation remains
far below its 2% target for the medium term, giving weight to decisions by officials to leave the central bank’s
benchmark interest rate pegged at a record-low of 0.5% since March 2009.
In the report, however, the BOE also justified not easing policy further to fully offset the effect of cheap
commodities, as it could “involve too rapid an acceleration in domestic costs, one that would risk being excessive.”
Policy makers at the Bank of England are also facing increased uncertainty ahead of June’s in-out referendum, in which
Britons will vote on the U.K.’s membership of the European Union. In the Inflation Report, the BOE issued its starkest
warning yet about the risks of quitting the bloc, saying it could push up unemployment while also driving up inflation,
as a weaker pound would make imported goods more expensive.
This would pose a conundrum for the central bank, officials noted, as it tried to juggle both situations.
“Monetary policy cannot immediately offset all the effects of a shock,” BOE Governor Mark Carney said Thursday.
The International Monetary Fund has also come out against Britain leaving the EU, saying Friday it could “precipitate
a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output.”
Proponents of exiting the EU say these concerns are overblown, and that the U.K. would prosper outside the EU.

 

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