UK: Positive inflation update lifts markets

Financial markets received a boost as UK inflation fell faster than expected. The Consumer Prices Index slowed from 8.7% to 7.9%, the biggest improvement in two years, as petrol and diesel prices fell. Core inflation also slowed, but this was less dramatic as inflation excluding volatile energy and food prices fell from 7.1% to 6.9%. Food inflation appears to have passed its peak. Research agency Kantar reported food inflation has fallen for four months in a row to 14.9% down from 17.5% in March.

The positive news on inflation helped lift government bonds. Slowing inflation means markets now see rates peaking below 6% and the yield on benchmark 10-year gilts fell to 4.2%, down from 4.7% two weeks ago. UK equities also rallied strongly led by housebuilders and property developers. A lower peak for interest rates should reduce the cost of mortgage borrowing, reduce the debt burden for commercial landlords and support higher valuations. Sterling gave up some of its recent gains against the dollar. 

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(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit Data Sourced from FE Analytics, and Bloomberg Finance LP.)

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