Inflation jumps to 3.5%: Experts respond

Commenting on the latest UK inflation figures, Neil Wilson, Investor Strategist at Saxo UK said: “We should always take April’s data with a pinch of salt, but higher inflation leaves the Bank of England happy to carry on at its relatively sedate pace of cutting once per quarter. This uptick in CPI has been on the cards and well discounted already. Inflation is likely to rise to 3.7% by September, according to the Bank of England’s own estimates. This is partly because of increases in energy prices and increases in some regulated prices such as water bills. But thereafter we expect inflation to fall back to the 2% target, which will enable the BoE to cut deeper than perhaps the market currently expects. There are clearly risks around this assumption due to the sticky nature of services inflation, but generally it seems likely that inflation in the UK is on the way down. The BoE’s continued caution on cutting any more quickly should offer sterling ongoing support against the broader trend of dollar weakness.”

UK Inflation Proves More Stubborn Than Expected 

Lale Akoner, global market analyst at eToro says: “UK inflation’s rise to 3.5% in April, the highest in over a year, is a clear sign that price pressures in the economy remain stubborn. Services inflation, a key gauge of domestic cost pressures, surged to 5.4%, while wage growth remains elevated at around 6%. These figures suggest that inflation is far from under control.

“Despite this, the Bank of England has begun cutting rates, now down to 4.25%, a move that risks being too aggressive, too soon. A slower, more cautious pace of rate cuts would be more appropriate given the persistence of inflation.

“For retail investors, this has real implications. Hopes for a swift drop in mortgage rates may be misplaced. Lenders are likely to remain cautious, keeping mortgage rates elevated until inflation shows clearer signs of retreat. That means higher borrowing costs for longer, something to factor into housing decisions.

“From an investment perspective, inflation-protected securities, dividend-paying stocks in stable sectors, and real assets like property and commodities have historically been used to hedge against sticky inflation. Investors may also consider short-duration bonds for stability. Regularly reassessing one’s portfolio could help maintain resilience in a prolonged high-rate environment.”

“The hot inflation report is set to embolden the hawks at the Bank of England, and, together with ongoing dollar weakness, can fuel further GBP/USD gains after hitting three-year highs. However, the pound may struggle to draw much more strength from a shallower monetary easing path.

“This could push the government’s already elevated borrowing costs even higher and aggravate concerns over the precarious fiscal position. At the same time, stagflation fears may intensify, as businesses face rising costs and are likely to pass them on to consumers, who continue to grapple with the high cost of living.”

George Lagarias, Chief Economist at Forvis Mazars comments: “The jump in inflation was not wholly unexpected, but prices still rose at a faster pace than forecasted. Even more worrying is the jump in services prices. Stagflation is a central banker’s living nightmare. Mr Bailey and the Monetary Policy Committee will have to choose whether to support growth or fight inflation by further risking the growth outlook.”

Lily Megson, Policy Director at My Pension Expert said, “This jolt in inflation is a timely reminder that there’s still a great deal of work to do to restore economic stability. While April’s wave of tax and bill hikes was expected to drive prices up, it doesn’t make the impact on household finances any less of a sting. With households already feeling stretched, the combination of steeper costs and renewed inflation pressures will make it even harder to prioritise saving.

“Inflation hikes have been the persistent thorn in the side of financial planning for years now, repeatedly knocking long-term goals, like retirement, off course. And whilst the government is trying to take steps to drive better financial outcomes via the reallocation of pension investments, savers need to know exactly what these changes mean for them and their money. With clarity, will come public confidence.

“Government, financial services and employers all have a role to play in delivering this – for example, by improving access to financial education and advice. A joined-up approach is essential to help people build financial understanding and make confident, informed decisions – especially in uncertain times.”

Ben Thompson, Deputy CEO, Mortgage Advice Bureau:

“Encountering this particular bump in the road was widely expected and forecasted. However, inflation rising to 3.5% shouldn’t discourage homebuyers from taking their first, or next, step on the property ladder, especially with summer proving the most popular time to move.

“In fact, our research revealed that 72% of our customers moved to a new property in the summer of 2024, which was actually just before mortgage rates started falling from their recent highs.

“With more innovation across the market than ever before, including a host of sub-4% rates, there’s never been a better time to buy. Speaking to a broker is essential, as with their market insight and expertise, you may actually end up being mortgage ready sooner than you think.”

Methodology:

*Mortgage Advice Bureau analysed completion data from June-September 2024, comprising a total of 42,798 customers.