Annual U.K. inflation slowed unexpectedly in April, and the pound fell to a fresh five-month low amid speculation of reduced chances for a rate hike.
The annual 2.4% was down from March's 2.5%, the Office for National Statistics said. Consensus forecasts had pointed to an unchanged reading, according to Econoday.
The pound slid 0.63% to $1.3365 as of 9:47 a.m. London time.
"Inflation continued to slow in April, with airfares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices," said Mike Hardie, the Office for National Statistics' head of inflation.
Core inflation, which excludes energy, food, alcoholic beverages and tobacco, fell to 2.1% in April from 2.3% in the prior month.
"Soft drink prices saw their biggest ever rise for this time of year, due to the introduction of the sugar tax. However, many retailers still haven't passed the impact of the tax onto shoppers," Hardie added.
"In principle, this takes some of the heat off the Bank of England to hike rates again in the near term — although it's worth remembering policymakers are still focused squarely on wage growth as a measure of underlying inflation," ING economist James Smith said in a research note, adding that core inflation should fall to 2% in June as the inflationary impact of a lower pound following the Brexit referendum in 2016 continues to fade.
Pay for U.K. workers grew at its fastest rate since mid-2015 in the three months to March. Still, a rate hike in August would require solid signs of recovery in overall activity, Smith said.
"Our feeling is the bank is inclined to hike rates assuming the data shows some signs of a bounce-back. That said, a lot still depends on the high street, where lower demand, rising wage costs and higher business rates are causing severe difficulties for retailers," he said.
