In April, UK CPI inflation surprised on the upside of expectations after an unexpected drop in the month before. On a monthly basis, CPI rose by 1.0% M/M to an annual level of 4.5% Y/Y, the highest reading since October 2008. Core CPI extended its uptrend too, rising from 3.2% Y/Y to 3.7% Y/Y, the highest level since records started in 1997. The details show that upward price pressures were widespread led by alcohol & tobacco (5.3% M/M), transport (5.8% M/M), clothing & footwear (1.3% M/M), communication (1.1% M/M), health (0.8% M/M) and housing (0.8% M/M), which were for a significant part due to the timing of Easter and tax hikes.
BoE Governor King had to write a letter to the Chancellor explaining why inflation was so high. He reiterated that high inflation was mainly due to VAT, energy and import prices and added that inflation would have been substantially lower and probably below target without these factors. King warned that the MPC thought an aggressive policy response to high inflation would risk generating undesirable volatility in output, signalling that the BoE remains reluctant to raise rates in order to keep inflationary pressures in check.