20 March 2024
If you are covering the latest UK inflation data, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“UK inflation has fallen to the lowest level seen since September 2021, with the annual rate coming in at 3.4% in February having been stuck at 4% for the prior two months. Meanwhile, core inflation also dropped to 4.5% down from 5.1% in January.
“With the majority of divisions seeing reduced levels of annual inflation in February, with areas such as food and communication seeing notable falls, the data paints a picture of broad disinflation across the goods economy, with the services sector seeing a much more muted drop. The plunge in energy bills anticipated in April could see an even greater fall in headline figures, aligning with the Office for Budget Responsibility’s expectation that inflation will average out at 2.2% in 2024. However, economist forecasts for the medium term have considerable variance, highlighting risks that are still present around energy security, supply chain resilience and structural labour shortages.
“Wage growth has been a significant driver of inflation in the service economy for some months, and recent data showed this is now slowing a little. However, it will likely make the Bank’s 2% target more difficult to achieve. This looks likely to remain a strong inflationary driver while there is an ongoing mismatch in the labour supply available and the level of demand on offer, with recent business surveys flagging that this pressure remains elevated and a cost they are passing through to customers in the form of price rises. Similarly, ongoing disruption to international shipping continues to put pressure on supply chains amidst higher freight rates and longer lead times.
“With signs that the UK has already returned to a modest level of growth despite interest rates remaining high, this inflation reading will give confidence to the Bank of England that inflation is now coming to heel. As it looks likely to fall further in coming months, with the 12% cut to the energy price cap kicking in from April, the Bank’s monetary policy committee will be under further pressure to consider rates cuts sooner rather than later.”
