UK inflation came in higher than expected for April, with the Consumer Price Index (CPI) rising to 3.5%, up from the 2.6% rise in prices in March. Core inflation—which strips out the more volatile categories of energy, food, alcohol, and tobacco—also climbed, reaching 3.8% in the 12 months to April, compared to 3.4% in the previous period.
The increase wasn’t entirely surprising. A key factor was the rise in the energy price cap, which took effect in April and allowed suppliers to charge consumers more. Airfares also appeared to spike, though comparisons are tricky. The Easter holidays fell at the end of April this year, whereas in 2024 they were split between March and April—making year-on-year analysis less clear-cut. Nevertheless, holiday travel tends to be costly, and airfares are often a significant driver of inflation during this period.
While the latest inflation reading is above recent levels, it’s unlikely to raise concerns at the Bank of England. Policymakers had already forecast inflation to reach around 3.7% in 2025, though they anticipated that happening later in the year. Importantly, this is just one data point. The Bank will now be watching closely to see whether it signals the start of a broader trend or simply reflects temporary pressures.
Chinese consumer activity has been gradually rebounding in the wake of the country’s post-COVID reopening and the downturn in the property sector, which had previously been a major source of household wealth. On Monday, new retail sales figures revealed a 5.1% year-on-year increase for April—slightly down from March’s 5.5% rise—likely reflecting the impact of recent trade tensions with the United States.
Despite this modest deceleration, the data suggests that Chinese consumer spending continues to grow at a steady pace. This resilience is largely attributed to government efforts to stimulate demand, including a campaign promoting widespread upgrades of industrial equipment and incentivising the replacement of household goods.
Adding to the supportive policy measures, the People’s Bank of China announced on Tuesday a 10-basis point cut to key lending rates to inject liquidity into the economy. These steps align with Beijing’s broader goal of achieving an economic growth rate of approximately 5% for the year. In response, the Hang Seng Index (China’s key stock market benchmark) rallied at the opening bell.
Yesterday, what began as highly anticipated peace talks between President Trump and President Putin (intended to advance an end to the Russia-Ukraine war) ended with little progress. Following a two-hour phone call, President Trump concluded that a resolution would immediately get underway, but a ceasefire could ultimately only be achieved through direct negotiations between Russian and Ukrainian leaders themselves. Markets reacted little to the news, likely awaiting the announcement of more concrete plans of action.
Still to come this week we have US PMI data, Japanese CPI and UK retail sales.
Nicola Tune, Portfolio Specialist
