Traders scale back rate cut hopes amid rising UK inflation

On Wednesday, May 21, the UK's National Statistics Office released data showing that the consumer price index (CPI) rose to 3.5% in April, up from 2.6% in March. In response, traders adjusted their forecasts, expecting only a quarter-point rate cut before the end of the year.

Following the inflation report, market projections for monetary easing by the Bank of England (BoE) in August shifted from 60% to 40%.

A rate cut in June is probably out of the question, as noted by Suren Thiru, ICAEW Economics Director. He also cast doubt on the likelihood of monetary easing in August.

An expected surge in inflation is set to raise alarms for BoE's chief economist, Hugh Pill, concerning the enduring inflationary forces that could hinder the regulator's ability to lower interest rates.

Consumer prices saw a 1.2% uptick over the past month, marking the quickest rise in two years. This was largely driven by a 6.4% surge in authorized gas and electricity prices.

In the wake of this news, the pound strengthened by 0.5%, reaching $1.3461, its highest level since March 2022.