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UK inflation dropped less sharply than forecast to 2.3 per cent in April, despite falling energy prices, denting market expectations that the Bank of England will lower interest rates at its next meeting.

The rise in the consumer price index was higher than the 2.1 per cent predicted by the BoE and economists polled by Reuters, while services inflation — which the BoE is watching closely — also overshot expectations.

The headline figure was the lowest since July 2021 and down from March’s rate of 3.2 per cent.

It was hailed by Prime Minister Rishi Sunak as a sign the UK is winning its battle with inflation ahead of the general election expected this year. He said the decline in the headline rate “marks a major moment for the economy, with inflation back to normal”.

However, economists said the higher than expected reading meant the chances of a rate reduction at the June 20 meeting of the BoE Monetary Policy Committee had diminished. The MPC has argued it needs more evidence that price pressures are receding before it cuts rates from their current 16-year high of 5.25 per cent.

The pound rose 0.4 per cent against the dollar to $1.2755 after the Office for National Statistics release.

Yael Selfin, chief economist at KPMG UK, said the headline reading was “within striking distance” of the BoE’s 2 per cent target, but added: “This may still not be enough to convince more cautious MPC members to commit to a rate cut in June, especially while wage growth remains elevated and economic growth momentum is strong.”

Markets lowered the probability of a June quarter point rate cut from 50 per cent to 15 per cent, with a rate reduction by September now only priced at a chance of around 80 per cent.

Investors are now evenly split on whether the BoE will deliver one or two quarter point cuts by the end of the year, having fully priced two cuts before the inflation data was released.

The BoE’s policymakers had predicted a steep fall in inflation owing to a reduction in the regulatory cap on household energy bills last month.

Data on the level of services prices will be a key factor, because the BoE sees these as an important gauge of the strength of domestic pricing pressures. 

The ONS reported that year-on-year services price growth was 5.9 per cent in April, below the 6 per cent reading for March. However, that was well above the 5.5 per cent rate of services price inflation predicted by economists and by the BoE in its latest round of forecasts. 

Tomasz Wieladek, economist at T Rowe Price, said the continued strength of services inflation meant the MPC would probably keep rates on hold for now.

“Services CPI inflation is the best gauge of underlying inflation and this remains uncomfortably high,” he said. “The data today clearly show that markets were too optimistic about a June cut and remain too optimistic about BoE cuts this year.”

Core inflation was 3.9 per cent, above a prediction of 3.6 per cent by economists polled by Reuters. That was down from 4.2 per cent the previous month. 

CBS News projects that State Assembly member Vince Fong, a California legislator backed by former President Donald Trump, has captured a special election to complete the remainder of the term of deposed former House Speaker Kevin McCarthy, which runs through January.

Fong — a McCarthy protege who also had the former speaker’s endorsement — defeated fellow Republican and Tulare County Sheriff Mike Boudreaux on Tuesday in the 20th Congressional District in the state’s Central Valley farm belt.

With 65% of votes counted Tuesday evening, Fong was leading Boudreaux by a margin of 60% to 39%.

McCarthy resigned last year after being ousted in the House. His dramatic fall — he is the only speaker in history to be voted out of the job — left behind a messy race to succeed him that exposed rivalries within his own party. He has worked behind the scenes to promote Fong’s candidacy — a political action committee linked to McCarthy steered over $700,000 into the 20th District contest to boost Fong’s campaign.  

The special election only covers the time remaining in McCarthy’s term. Fong and Boudreaux will reprise their contest again in November for a full, two-year term in the district, though the winner of the special election will gain the advantage of incumbency.

Because of Trump’s involvement, the race will be watched as a possible proxy vote on the former president’s clout as he heads toward an all-but-certain matchup against President Biden in November.

Trump endorsed Fong in February, calling him “a true Republican.” Boudreaux’s supporters include Richard Grenell, a former acting director of national intelligence in the Trump administration, and Republican state Sen. Shannon Grove of Bakersfield, Fong’s home turf.

Republicans occupy only 11 of the state’s 52 U.S. House seats. With the district once held by McCarthy remaining in GOP hands, it will give Republicans 12 seats in the state delegation and boost the party’s fragile edge in Congress by a single vote.

There are currently 217 Republicans in the House, 213 Democrats and five vacancies. Those vacancies include McCarthy’s former seat.

Some voters might be confused, since Fong and Boudreaux already have appeared on two House ballots this year — the March 5 statewide primary for the full House term, and the March 19 primary in the special election to fill out McCarthy’s term.

The two conservative Republicans and Trump supporters occupy much of the same policy terrain. Boudreaux has been spotlighting his decades of law-and-order experience and is promising to harden the nation’s porous border. Fong also promises to “end the chaos” at the border with Mexico while prioritizing water and energy needs in the farm belt.

Fong, a onetime McCarthy aide who also has the former speaker’s endorsement, entered the contest with advantages beyond endorsements from Trump and McCarthy.

Fong carried 42% of the vote in the March primary election, Boudreaux nearly 26%, with the remainder divided among other candidates. Fong hails from the most populous part of the district, Kern County, and he has outraised the sheriff by about 3-to-1 in campaign funds, according to federal records through the end of March.