Experts respond as inflation drops to 3.2%

 

Price falls for some food items helped drive inflation down to its lowest level in two-and-a-half years; the rate consumer prices have been rising at fell to 3.2% in the year to March, down from 3.4% the month before, according to official figures

 

Inflation has been falling gradually since it peaked at 11.1% in late 2022, but lower inflation does not mean prices overall are coming down, they are just rising less quickly.

 

 

Lily Megson, Policy Director at My Pension Expert, said, “This easing brings a glimmer of relief for consumers, marking a consecutive downturn from last month’s rate. But is it enough to restore savers’ confidence? That remains to be seen.

“While retirees may find some solace in the latest state pension rise courtesy of the triple lock, it’s important to recognise that this alone won’t begin to address all the UK’s pension challenges. There’s a pressing need for additional support for those nearing retirement, empowering them to safeguard their pensions against broader fluctuations in the economy.

“Relying solely on gradually subsiding inflation is an inadequate strategy: the government must explore further avenues to support financial understanding among savers. It’s vital that the government collaborates with the financial services sector to prioritise financial education and accessible advice for all to ensure that consumers can take control of their financial futures – after all, everyone deserves to benefit from an economy in recovery.”

 

 

Andy Mielczarek, founder and CEO of SmartSave, a Chetwood Financial company, said: “A second drop in inflation in as many months is a much-needed sign of progress. With inflation now at its lowest since mid-2021, consumers may feel like it’s the time for celebration, but we mustn’t get ahead of ourselves.

“The reality is that the economic climate is a long way from where it needs to be. Millions of people continue to struggle with household bills and credit repayments, worsened by a further slowing in wage growth. Any drop is good news, but we mustn’t lose our perspective on how bad things have been.

“The 2% inflation target is inching closer, so it might not be long before the Bank of England cuts interest rates. So, now is the time for people to squeeze every penny out of the higher rates offered on their savings before they, too, start to diminish.”

 

 

“The window of opportunity for higher savings rates is closing”

 

Adam Thrower, Head of Savings at Shawbrook comments:“While inflation may be showing signs of easing, the window of opportunity for higher savings rates is closing. The Bank of England is likely to consider lowering base rates in the future, which could lead to a decrease in the best offers available.

 

“Cash ISAs offer a powerful tool for savers. These accounts not only provide tax-free interest, but also potentially outpace inflation, allowing your money to retain its purchasing power.  The new tax year presents a golden opportunity: a fresh £20,000 tax-free allowance to maximise your savings.

 

“Shockingly, 40% of savers remain unaware of their current interest rate.  It’s crucial to check – with better rates readily available from established challenger banks offering the same security as traditional high-street names, switching could be highly beneficial.  By ensuring your provider is FCSC registered, you can enjoy competitive rates without compromising on safety.”

 

Paresh Raja, CEO of Market Financial Solutions, said: “Inflation remains above the Bank of England’s target of 2%, delaying an eagerly awaited rate cut for another couple of months at least. The over-riding sense is that the base rate will be cut in June, although all eyes are on the US Fed, with the Bank of England unlikely to act until cuts are made ‘across the pond’. Nevertheless, we are seeing that buyers, investors, brokers, and lenders within the UK property market are all gearing up for a more accommodative monetary policy environment.

“Lenders are constantly adapting their products in line with the economic outlook. Meanwhile, recent data unveils a significant uptick in mortgage approvals, accompanied by an upward trajectory in wages. In combination, these factors mean that prices are expected to continue to rise at the steady rate we have seen so far in 2024, and analysts predict that a stabilisation or slight uptick in prices by year-end as the market begins to benefit buyers to a greater extent than sellers.

“This outlook is positive, but the economic environment remains challenging. Today’s inflation data will continue to imbue the property market with a growing sense of confidence as the economic horizon brightens.”

 

 

Another step in the right direction for UK inflation

 

Ben Laidler, analyst at investment platform eToro, said: “UK inflation saw another welcome fall to its lowest level since September 2021. The 3.2% rise was held down by a sharp deceleration in food, restaurant, and recreation prices, which more than offset the recent increase in forecourt petrol prices.

“This March report helps keep the door open to mid-year interest rate cuts from the Bank of England, which would be a relief to UK homeowners and consumers, with Governor Bailey saying he sees ‘strong evidence’ of retreating price pressures. This first cut would likely be after the ECB but now before the US Federal Reserve.

“The falls in UK inflation have been slower-than-hoped but the country is no longer the global prices laggard it was for much of the past two years, with the US now facing its own cocktail of rising inflation and doubts on when or if it can start cutting interest rates.”

 

 

Lisa Watson, Director of Sales at Close Brothers Motor Finance, said: “A smaller-than-expected drop in inflation has in part been driven by rising fuel prices.

 

 

“This will be unwelcome news for motorists who continue to bear the brunt of tough economic conditions. Our research found that more than half (53%) of drivers list rising fuel prices as their main concern in 2024, followed closely by car insurance hikes (52%). So today’s inflation figures will do little to suppress the mounting economic pressure on motorists. Of which 62% already believe that car ownership is simply becoming unaffordable.

 

“As consumers continue to feel ambushed from all angles, many are having to find ways to tackle these rising costs. Two in five (39%) are cutting down on the amount they drive and a quarter (24%) are turning to public transport more often. Some are even taking more extreme measures such as getting rid of a second car (11%).

 

 

Other concerns:

 

1.     MOT / servicing costs – 37% 

2.     Cost of purchasing a new car – 30%

3.     Road tax hikes – 30%

4.     Not being able to afford the running costs – 26%

5.     Further crackdowns on petrol / diesel vehicles – 22%

6.     Parking charges increasing – 20%

7.     High second-hand car prices – 19%

8.     Introduction of ULEZ / similar schemes – 16%

9.     Lack of infrastructure development, such as charging points – 14%

10.  Not picking the right choice of vehicle for my needs – 11%

11.  Delays in car production – 5%

12.  Having to lend / share my vehicle with someone else i.e. my partner or children – 5%

Research was carried out by Censuswide among 2,007 drivers between 17/01/2024-21/01/2024.

 

Ben Thompson, Deputy CEO at Mortgage Advice Bureau, said:

 

“A base rate cut from the Bank of England is still firmly on the cards for the summer, especially following today’s announcement that inflation continues to fall. Despite some unrest in the market, mortgage rates have stabilised, and with spring arriving we expect to see more confidence from buyers and lenders heading into the summer.”

“Following a third consecutive month of growth in the number of new buyers, this inflation reading will offer another confidence boost. This should subsequently see lower rates beingoffered to those looking to remortgage or buy their first home. For those looking to maketheir homebuying dreams a reality, now is the time to ensure you are mortgage ready, soyou can climb the first rung of the ladder when the time comes.””

 

 

George Lagarias, Chief Economist at Mazars comments: “UK headline inflation is coming down at a snail’s pace. While producer prices fell further, services inflation saw the biggest jump in over six months.

“The UK is hitting the same ‘sticky’ inflation patch as the US, the point where energy and goods have stopped dis-inflating prices, but services persist as the labour market remains tight. However, there is one big difference with the US: the British economy is in a technical recession, and demand is much weaker. Despite the slightly stronger than expected inflation  number, the shallow economic trajectory still allows the Bank of England enough room to begin cutting rates this year.”

 

Brian Byrnes, Head of Personal Finance at Moneybox, comments: “UK inflation might have fallen once again, but consumers should not take this as an indication we will see interest rates cut next month, as we are still above the Bank of England’s 2% inflation target.

“With inflation now at 3.2% and UK GDP up by 0.1% in February, we are beginning to see a shift towards a more favourable environment for the UK economy and British household finances. However, after a surprise rise in US inflation last week, many industry experts have pushed their forecasts for the first rate cut in the UK from June to August.

“As consumers we must remember that the Bank of England is playing chess and not checkers when it comes to managing inflation. They will be doing everything in their power to avoid cutting rates too soon, as inflation might be sticker than thought, which could lead them to raise rates again.

“In February the UK consumer prices index fell to 3.4% from 4% in January, yet only one member of the central bank’s Monetary Policy Committee voted in favour of cutting rates. We can rest assured that progress is being made but we are not out of the woods just yet.

“For those waiting to see if today’s numbers affect mortgages, most lenders set rates based on interest rate predictions for the next five years or so. As such, we are unlikely to see much movement in the mortgage market until we get closer to the Bank of England’s 2% target and the central bank actually starts cutting rates, rather than speculating when they might. In the meantime, savers should make sure they are getting the best possible deals for their cash savings while rates remain at these record levels.

“A falling interest rate environment is generally a positive for investors as it makes investing in stocks and shares relatively more appealing versus cash. However, as markets have been pricing in interest rate cuts for some time now and we are still likely to see cuts in the second half of 2024, today’s inflation readings alone are unlikely to impact long-term investors.”