17 April 2025
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UK inflation comes in softer than expected

Daily Outlook - 17 April 2025

By Daniel Richards

CPI inflation in the UK slowed to 2.6% y/y in March, down from 2.8% in February, while prices were up 0.3% m/m. Both measures were lower than predicted, with the annual measure beating the consensus estimate of 2.7%. Core inflation remained somewhat stickier at 3.4%, in line with expectations but down from 3.5% previously but there was a sharper slowdown in services inflation which fell to 4.7%, down from 5.0% the previous month and lower than the expected 4.8%. Cheaper computer games and lower fuel costs helped drive the slowdown, though incoming higher utilities bills from April will likely stall and reverse the slowdown in price growth over the coming months.

US retail sales surprised to the upside in March as they grew 0.5% m/m, beating the predicted 0.4%, while February’s print was revised up to 0.7%, from 0.3% previously. Stripping out volatile automotives and gas, growth was a robust 0.8% m/m, matching the upwardly revised pace from February. The stronger than expected upswing in purchases appears to suggest that consumers were seeking to get ahead of any tariff-induced price rises that were anticipated in April. Industrial production meanwhile dropped 0.3% m/m after February’s 0.8% gain, worse than the predicted 0.2% fall. Manufacturing production was up 0.3% m/m.

The Bank of Canada opted to keep its benchmark interest rate on hold at 2.75% yesterday, despite the lower than expected inflation print released the previous day. Governor Tiff Macklem explained the decision as proceeding ‘carefully’ in the face of potential upwards pressure on prices from the US government’s tariffs policies.

Fed Chair Jerome Powell pushed back against hopes of imminent market-supporting cuts from the Fed yesterday, telling the Economic Club of Chicago yesterday that the fed’s ‘obligation is to keep longer-term inflation expectations well anchored’.

Today’s Economic Data and Events

15:00 Turkey one week repo rate, %. Forecast: 42.5%

16:15 Eurozone ECB deposit facility rate, %. Forecast: 2.25%

16:30 US initial jobless claims, week to April 12. Forecast: 225,000

Egypt overnight deposit rate, %. Forecast: 25.9%

Fixed Income

  • Treasury markets rallied yesterday, with yields on the 2yr down 8bps to 3.7695% while the 10yr dropped 6bps to 4.2768%, seemingly welcoming Powell’s balanced outlook and reassurance on the market.
  • Today is a big bank for central bank decisions, with rate-setting decisions due from the ECB, Egypt, Turkey. The Bank of Korea kept its benchmark interest rate steady at 2.75% this morning amidst a rise in CPI inflation and trade war concerns.

FX

  • The dollar index hit a new six-month low yesterday as it closed 0.8% lower on the day amid concerns of the widening scope of the US tariffs. EUR surged 1.0% to close at 1.1399, while JPY strengthened by 0.9% to 141.88.
  • GBP saw a weaker 0.1% gain to 1.3244, with the softer CPI print raising expectations of BoE rate cuts.

Equities

  • Equity markets did not react to Powell’s comments as positively as treasuries, with hopes of a Fed put dashed. All three US benchmark indices closed down sharply with the Dow Jones, the S&P 500, and the NASDAQ losing 1.7%, 2.2%, and 3.1% respectively.
  • Locally, the ADX dropped 0.3% and the DFM 0.5%. Saudi Arabia’s Tadawul closed up 0.2%.

Commodities

  • Oil prices gained yesterday as the US ratcheted up pressure on Iranian supply, adding a second Chinese refinery accused of taking crude from Iran to its sanctions list, with Treasury Secretary Scott Bessent talking about maximum pressure.
  • Brent futures rose 1.8% to close at USD 65.9/b while WTI added 1.9% to USD 62.5/b. Both benchmarks are seeing further strong gains in early trading this morning.

Written By

Daniel Richards Senior Economist


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