Inflation data was the key focus of attention for UK investors this week. Year on year, the consumer price index rose by 3.2%. This was higher than the consensus forecast of 3.1% but below the February reading of 3.4%. This created a split in opinion amongst market commentators. Some took comfort in that it continues to move in the desired direction, back towards the 2% target. Others meanwhile we more focussed on the rate coming in slightly higher than expected. This perhaps provides an indication of nervousness around these prints, as commentators try to forecast the Bank of England’s next move with regard to interest rates. The main contributor to the move lower was a further slowdown in food inflation, which is a welcome for the consumer.

Sticking with the consumer, they will have also taken comfort from the latest average earnings data, which showed that wage growth (ex. bonuses) grew 6% to February. Whilst this was below the 6.1% seen the previous month and consensus forecast, it remain comfortably above the consumer price inflation rate. For February, just to compare like with like, this stood at 3.4%, wages therefore growing by 2.7% in real terms. This represents a real increase in spending power.

In the US, meanwhile, it was not economic data which unsettled the markets but rather a statement from the Chairman of the US Federal Reserve, Jerome Powell. Speaking to a policy forum, he was quoted as saying that “the recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence.” This heightened concern that June could perhaps prove too soon for an interest rate cut, and that the first may now be postponed until July or even possibly September. Powel also added that “we can maintain the current level of restriction for as long as needed.”

In more positive news, the release of the latest economic forecast from the International Monetary Fund (IMF) painted a rosier picture compared to their previous assumptions. They now expect the global economy to grow by 3.2% this year, the same rate of growth seen in 2023. This is a marginal improvement from the January forecast of 3.1%. Within advanced economies there were upgrades for the US and Spain, whilst in developing economies there were improvements for Russia and Brazil, commodity lead economies. Like most, they believe that the “near term priority for central banks is to ensure that inflation touches down smoothly, by neither easing policies prematurely nor delaying too long and causing target undershoots.” It would be fair to say this is something that we all hope for.

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