UK Inflation Surprise Pushes Back Rate Cut Bets for Bank of England

The UK's inflation rate rose more than expected in March, according to data released by the Office for National Statistics. The consumer price index increased to 3.2% year-over-year, exceeding forecasts of 3.1%. This has led to a scaling back of bets on an imminent interest rate cut by the Bank of England.

The stronger-than-expected inflation reading complicates the policy path for the Bank of England. Prior to the release, markets had priced in a 60% chance of a rate cut in June. However, after the data, that probability fell to around 45%, according to Refinitiv data.

The pound rose modestly against the dollar and euro following the release, but the moves were seen as temporary, with sterling settling near $1.2650 against the dollar. The inflation overshoot was not large enough to fundamentally alter the Bank of England's expected easing cycle.