22 May 2024
If you are covering the latest UK inflation statistics, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Today’s inflation figure of 2.3%, a nose ahead of economists’ expectations and still above the Bank of England’s target, still puts the UK on course this summer for its first rate cut in more than four years. The fact the headline rate begins with a two is incredibly symbolic given the events since the pandemic and the fact inflation was over 11% less than two years ago (October 2022). Investors will not want the Bank of England to be as cautious on the way down with rates as they were on the way up, when inflation was spiking, and this simply ratchets up the pressure come its next meeting in June.
“Energy costs such as gas and electricity have fallen significantly in the year to April, causing the steep decline in the figure, leaving Core CPI, which excludes volatile prices such as energy and food, still at an uncomfortably high 3.9%. The Bank of England will be incredibly cautious of further inflationary spikes in the second half of the year, particularly given UK wage growth is running at 6% - well above the headline CPI rate. Pay deals and rises are going to come under intense scrutiny should that figure not begin to fall in line with the overall rate of inflation. Furthermore, the global picture shows no sign of helping the BoE in its task, with geopolitical risks still very much present and US inflation proving stickier than many would like.
“For now however, investors will cheer the fact the headline inflation has come back close to target once more. Historic data shows that in the absence of a recession, investment returns are strongest in the year after the first rate cut, so there will be lots of anticipation as the UK appears to turn the economic corner.”
