Inflation Falls. Pressures Remain.

Word of the week Wednesday

Money Bill: In the UK, a ‘money bill’ is a parliamentary bill that is deemed by the Speaker of House of Commons to exclusively cover national taxation, public money or loans.

Under the Parliament Acts, if a money bill has been passed by the House of Commons, it will be presented for Royal Assent after a month regardless of whether it has been approved by the House of Lords.

Money Bills came into existence after the House of Lords House of Lords refused to pass David Lloyd-George's 1909 budget dubbed ‘The People's Budget' (which had been passed by the HoC). The subsequent general election provided Lloyd-George with a mandate to reform the House of Lords and ensure the Bill was passed.

Inflation Falls. Pressures Remain.

UK headline inflation showed signs of falling to its lowest level since September 2021 as markets continue consider the Bank of England’s future monetary pathway. On a year-on-year basis, the UK’s consumer price index slipped to 3.4% in February, below market expectations of a 3.5% print.

This marked a 60bps reduction in the rate of inflation recorded from the previous print and increases the gulf between the current rate of inflation and the multi-decade highs of 11.1% seen in October 2022. While the print indicates that inflation is coming down (having picked up between November and December and stalled between December and January), it remains well above the Bank of England’s 2% target rate and is indicative of the inflationary pressures continuing to face the economy.

Core inflation – which strips out the volatile food and energy indexes – also fell to its lowest level since January 2022. Here, the index printed 4.5% against the consensus which was pointing to 4.6%.

Nevertheless, the CPIH (or the Consumer Prices Index including owner occupiers’ housing costs) services annual rate eased only marginally from 6.1% to 6.0%. Given that this includes owner occupiers’ housing costs and Council Tax - which are excluded from the CPI – this is often considered a more comprehensive gauge of inflation. Though this was in line with the Bank of England’s expectations, according to the ONS, it demonstrates the level of the cost-of-living pressures still on households.

As focus turns to tomorrow’s monetary policy committee, markets continue to price in a hold from the Bank of England and around 70bps of cuts from the Threadneedle Street this year.

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Air Quality Missing WHO Guidelines

Yesterday a study published by Swiss air quality company IQAir indicated that just seven countries met the World Health Organisation PM2.5 air pollution guideline limit.

PM2.5 is the benchmark for fine particulate matter which exists in the air and has a diameter less than 2.5 micrometres across (or one 400th of a millimetre). It is thought that PM2.5 is the pollutant which poses the greatest threat to people’s health and while WHO indicates that there is no safe level for PM2.5, they have a guideline limit of five micrograms per cubic metre of air. This number was reduced from 10 micrograms per cubic metre a few years ago of air reflecting heightened concern over the danger of the particulates.

The data showed that London exceeded the WHO guidelines by 8.4 times.

According to the Energy Policy Institute at the University of Chicago, globally seven million people die every year from illnesses associated with air pollution, hence the latest survey is the latest reminder of the scale of the issue presented by poor air quality.

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Today in Focus

Today’s key event is the latest FOMC meeting, where Fed policy makers will present forward guidance through the release of their dot plot. The consensus continues to see the Fed maintaining their benchmark policy rate at 5.25-5.5%. At their previous Dot Plot publication, policy makers pointed to 75bps of cuts by the end of the year. At that time, the gulf between this projection and the markets’ view was considerable, with the latter pricing in some 150bps of cuts. However, over the weeks and months the market has continued to downwardly revise their expectation and are now pricing in around 75bps of cuts this year.?