The latest figure for UK inflation was 8.7% in the year to April – down from 10.1% in March and 11.1% in October.

However this is still very high and more than four times higher than the Bank of England’s target of 2%. Here are the headlines:

  • UK’s inflation rate falls to 8.7% in April, from 10.1% in March
  • First time below 10% since August last year
  • Prices are not coming down; they are not going up so quickly
  • Food costs are still 19.1% higher than a year ago, the Office for National Statistics says, and rising at a near record rate.
  • Slower rises in energy bills, compared to a year ago, were one of the reasons for the overall inflation drop
  • PM Sunak has pledged to halve inflation this year

In response, Chancellor Jeremy Hunt said:

‘The fact that they have come down markedly – the headline rate – of course is welcome news, but there are things underneath those numbers which show that this battle is far from over. We’ve got a long way to go.
Inflation remains the invasive weed in the UK’s economic garden

Rob Morgan, Chief Investment Analyst at Charles Stanley
UK inflation has, as widely expected, turned a corner or sorts with CPI falling from 10.1% in March to 8.7% in April. We can now expect a steady descent from multi-decade highs as the largest hump in energy prices passes through the calculations.

Yet that is where the good news ends. All is not rosy in the UK’s economic garden with inflation coming in consistently hotter than expected, largely thanks to runaway food prices. Exterminating the inflation weed may take time and persistence from the Bank of England, and it may mean households and investors getting used to structurally higher interest rates than they have been used to.
What does it mean for interest rates?
With groceries in particular showing little response to the Bank of England’s twelve successive interest rate rises, today’s figures could well seal a further increase in interest rates at the monetary policy committee’s next meeting on 22 June from the current level of 4.5%.

Like other major central banks, the Bank of England is near the end of its interest rate hiking cycle but will likely maintain tight policy for the remainder of the year, meaning no significant rate cuts until 2024. While the battle with inflation will be won, it will likely be a long and arduous one with central bankers’ credibility at stake.
What is the impact on households?
The headline moderation in inflation is little comfort for households under pressure. The month-on-month figure of 1.2% (compared with a rise of 0.8% in April) is a painful reminder that prices continue to climb and the cost of living challenges are not over.

Most worrying is food prices. The inflation shock since the turn of the year has almost entirely been caused by the rising cost of groceries, and the April numbers reveal that year-on-year increases remain close to record highs, providing little comfort for households grappling with the cost of living. Prices of food and non-alcoholic beverages were 19.1% higher in March than a year earlier, and in April that eased only slightly to 19.0%, a miserable situation for many households struggling to buy the essentials and make ends meet.

With the Bank of England set to increase rates again, the difficulties in the housing market look set to continue. So far, many households with fixed or discounted mortgage rates have been insulated, but if interest rates remain at higher levels more will be affected as time goes on. This will have greater knock-on consequences for consumer spending as the months go by.

For savers the increase in interest rates has been a welcome tonic compared with the dreary returns of much of the past decade. However, even the most competitive accounts pay significantly less than headline inflation meaning that the spending power of cash is stuck in reverse gear.
What does it mean for investors?
Financial markets are presently balancing the wide range of outcomes for inflation both globally and in the UK. However, a recent rise in government bond yields is indicative of a leaning towards higher and longer lasting inflation than previously anticipated. For instance, the ten-year gilt yield is presently around 4.1% having started the year at around 3.6%. This is keeping a lid on asset prices across the board as investors try to factor in the appropriate level of inflation and interest rate risk. All else being equal, higher inflation and interest rates to combat them is negative for most asset prices as investors require a higher rate of return, implying a lower starting value.
Adam Thrower, head of savings at Shawbrook said: “Inflation is finally heading in the right direction and leaving double-digits, which is certainly a welcome relief to all. However, at 8.7% the rate of price growth remains high. For savers, the recent Bank of England decision to raise the base rate represents another opportunity to protect their savings from inflation. 

“Now is not the time to sleep on your savings rate. Our research has shown that half (47%) of savers haven’t switched to a better rate in the last year, largely due to the perceived time and effort needed, meaning apathy could be costing them hundreds, if not thousands. But switching is quicker and easier than many might think and an effective way to reduce the impact of inflation eroding the value of your savings. With savings rates the highest they’ve been in years, there is no better incentive to shop around for the best deals in the market.“
Lily Megson, Policy Director at My Pension Expert, said: “Consumers will undoubtedly be pleased to see inflation figures back in single digits for the first time since September last year. Yet the hard truth is that it has taken far too long for this to happen; there is still a considerable way to go before the conditions for the security of people’s savings improve.

“We can’t ignore the reality faced by many Britons; food and energy prices are continuing to soar, whilst over a year of rocketing inflation rates have hit savings hard. And for some, the prospect of achieving a financially secure retirement still hangs precariously in the balance. After all, My Pension Expert’s own research found that over a third (34%) of UK adults feel that the cost-of-living crisis will delay their retirement.

“It is vital that the Government commits to providing adequate support to people concerned with their future financial prospects. Free guidance is a reasonable start; however, more must be done. Ensuring individuals understand where and how they can access independent financial advice would be a powerful move to helping savers to better understand the financial situation. More importantly, doing so could help them to remain on the right track to the financially secure retirement they deserve.”
Andy Mielczarek, Founder and CEO of SmartSave Bank, a Chetwood Financial company, said: “Although today’s figures show that efforts to reduce inflation are finally bearing some fruit, the cost-of-living crisis isn’t over yet. Underlying price pressures in the economy show little sign of improvement, and despite inflation’s drop into single digits, this means that consumers will continue to be impacted by high costs. Yet this environment remains great for those able to save, as long as they’re saving in the right place.

“In the current climate, the majority of easy-access savings accounts will not be able to keep pace with inflation, meaning that a significant number of people are seeing their money losing value in real terms. Worse still, our research shows that a worrying percentage (97%) of the UK’s savers are relying on current accounts alone to house their money, while uptake for different savings products – from ISAs to fixed-rate bonds – is low across the board.

“Even though pressures on the economy are gradually easing, it’s vital that people in a position to put money away each month are proactive about how they are managing their savings to beat inflation. For those looking to deposit a lump sum, fixed-term, fixed-rate bonds can be a good option when it comes to accessing higher interest rates, while many people could also benefit from exploring their options beyond the savings accounts offered by high-street banks.”
Food prices
Mohsin Rashid, CEO of ZIPZERO, said: “Inflation falling into single digits after seven long months is certainly welcome news to Britons everywhere. But we are by no means in the clear. Inflation remains at astronomic levels and, crucially, high prices continue to hit consumers’ pockets where it hurts the most: their grocery bills.

“Even with savvy spending, consumers are very limited in what they can do given the extreme price rises they have been subjected to over the past 18 months. Shoppers are having to make very difficult choices, with some even skipping meals, relying on food banks, or getting into debt to put food on the table for their household. Britons need relief from endless price hikes; equitable solutions must be found between supermarkets and their customers.”
Lack of business support
Chieu Cao, CEO of Mintago, said: “While it’s encouraging to see inflation falling, the financial burden faced by Britons is set to remain steadfast, and many people will feel like their finances are spiralling out of control.

“Ultimately, there is no quick fix. Yet with Mintago’s research finding that just 29% of employees have received financial wellbeing support from an employer that has actually improved their financial situation, it is blatantly clear that millions of individuals are being under-supported. Something needs to change, and fast.

“Employers cannot just talk the talk about financial wellbeing, but they must also walk the walk. Nor can they rely on a one-size-fits-all approach to providing financial wellbeing support. Instead, employees must be given access to robust, meaningful support measures suited to the current economic climate; measures that, crucially, meet the unique needs of each and every individual.”
Commenting on this morning’s inflation figures, Sarah Pennells, Consumer Finance Specialist at Royal London said:

“While headline inflation has fallen, prices are still rising faster than wages and many remain trapped in a cycle of financial crisis. 

“Food inflation remains stubbornly high and 12 increases in the Bank of England’s base rate have ratcheted up borrowing costs for millions of homeowners.

“While families are making cutbacks across their everyday spending in an attempt to make their money stretch, many are still overdrawn or have to borrow before the end of the month.”

Single-digit inflation returns – but the road back to normal is a long, winding and uncertain one
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Inflation is nowhere near where it needs to be, but the sharp fall and return to single-digit inflation is a positive development.

“Food non-alcoholic beverage prices remain near 45-year high, and the marginal fall in annual inflation in this category, down 0.1% to 19.1% offers limited comfort to households. Increases in the cost of second-hand cars and cigarettes kept inflation elevated in April.

“But dips in energy and fuels prices helped pave the way for the slowest pickup in prices since last August. These price declines should give us some real breathing room in the near future to absorb stubborn and sticky inflation in other key areas of expenditure, like food, which could persist for a little while longer before coming down.

“The fall in headline inflation is somewhat of a false dawn as core CPI, which excludes energy, food, alcohol and tobacco, rose by 6.8% in the 12 months to April 2023, up from 6.2% in March – the highest rate since March 1992.

“The sharp slowdown in the headline figure may not continue, since a large chunk of that decline is attributable to a significant drop in fuel prices which might not be sustained. The cartel of oil-producing countries, OPEC, announced cuts to its production last month to try to raise prices.

“It has been a tough couple of years for households, during which inflation has accelerated to levels not seen since the 1970s. We calculate that the UK lost £153 billion to inflation over a two-year period to March 2023, averaging £5,455 per household*, as price rises across key areas of household expenditure robbed Britons of purchasing power. While Britain appears to be past the worst phase of the biggest spike in inflation in generations, the road back to normal is a long, winding and uncertain one. As such, many of us will remain in budgeting mode as heightened costs continue to weigh on household budgets.

“With inflation retaining concerning staying power, the Bank of England will now have to assess whether the interest rate hike cycle which has seen rates rise at breakneck speed to 4.5% from near zero as recently as March 2020 has had the intended effect or it needs to more to ensure that price increases will come fully under control.”

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