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UK Inflation Rose Marginally: What’s Affecting the Economy?

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Apr. 30 2018, Published 8:01 a.m. ET

UK’s inflation in March 2018

According to a report by the Office for National Statistics, the United Kingdom’s inflation index rose 0.1% on a monthly basis in March as compared to 0.4% in February. The market expected a gain of 0.3%.

However, on a yearly basis, inflation in the United Kingdom (EWU) in March stood at 2.5% as compared to 2.7% in the previous month. The March reading didn’t meet the market expectation of a 2.7% rise. However, a sudden weakness in the inflation index is always a major worry for investors.

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Components of inflation

The improvement in inflation was mainly due to the improvement in prices of recreation, food and beverages, restaurants and hotels, and housing and utilities. However, prices of miscellaneous goods and services fell in that month.

Inflation is an important component of the central bank’s decision-making process. In November 2017, the Bank of England raised its key interest rate by 25 basis points for the first time in almost a decade. If the economic data is supportive, then we might see a larger rate hike from the Bank of England in the near future. The central bank also signaled that the need for a rate hike is rising.

The broader United Kingdom’s FTSE 100 Index (UKX-INDEX) fell 1.6% in March 2018. However, the iShares MSCI United Kingdom (EWU), which tracks the United Kingdom’s performance, rose 0.2% in March 2018.

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