16 April 2025
If you are covering the latest UK inflation statistics, please find below a comment from Lindsay James, investment strategist at Quilter:
“Following a bumper reading for economic growth in February, today’s fall in inflation, slightly better than expected, will be welcome news to the government. With the jobs market weakening somewhat, and very real and present tariff threats still in play, any downward pressure on inflation will be hailed.
“Much like financial markets, however, the outlook for inflation remains very uncertain. Nobody quite knows what is going to happen next on President Trump’s tariff rollercoaster, and as such the economic environment will be volatile. Furthermore, there are specific inflationary pressures for the UK, with the new rates of national insurance now in place on employers and the likely upward impact this will have on prices.
“But there is good news too. Energy prices have dropped quite significantly since the start of the year, with oil down around 15% year to date, whilst European natural gas prices are around 25% lower. Whilst this in part reflects the weaker outlook, higher levels of OPEC+ production have also seen oil prices fall, and if this is sustained, then it could offset some of the inflationary pressures the UK has specifically.
“The other positive is that at present the likelihood of significant retaliatory tariffs on the US appears low. Indeed, comments from Vice President Vance suggests a trade with the UK may be imminent. Now this may in itself be a negotiating tactic given the market reaction to the tariffs and the need for quick wins, but clearly removing that uncertainty would be beneficial for the UK. Meanwhile, whilst wage inflation, the largest component of services inflation, remains elevated, it has the potential to fall back down to more sustainable levels should the labour market continues to soften.
“Overall, however, this is a picture of a soft economic outlook. What this brings into play, though, is the scope for further rate cuts. The market is currently pricing in three by the end of the year, with one more cut having been factored in since the so-called ‘Liberation Day’. Should inflation play ball and stay in this 2%-3% range, then we may just see those rate cuts be delivered.”
