UK inflation - live: Tories call for cut to interest rates despite market gloom over rising prices
Rate of Consumer Prices Index inflation falls to 2.3 per cent in April
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Tories are calling for the Bank of England to cut interest rates despite market gloom over new inflation data.
Analysts say the chances of a cut in June are now slim after inflation fell to 2.3 per cent in April from 3.2 per cent in March - the lowest level in nearly three years - but above the 1.9 per cent to 2.1 predicted by some analysts.
But Sir Jacob Rees-Mogg, the former Conservative business secretary, argued the Bank should have cut rates already because “inflation is a lagging indicator.”
Paul Scully, a former minister, said cutting the rate would “bring relief to many who are fixing their mortgages for the next few years”.
Paula Bejarano Carbo, NIESR economist, added said persistent core inflation and strong wage growth data suggested the Bank “may exert caution at its upcoming meeting and hold interest rates, despite today’s encouraging fall in the headline rate.”
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said a June cut was now “unlikely”.
FTSE 100 nudges downwards on Tuesday
The FTSE 100 nudged downwards on Tuesday as a broader sell-off reached European stocks after falls in Asia.
Global markets continued with their cautious tone this week, with BT, Vodafone and easyJet among the biggest fallers on the UK index.
The FTSE 100 finished 8 points, or 0.09%, lower at the close at 8,416 points.
It came after Federal Reserve officials said they were not ready to say inflation was heading towards the US central bank’s 2% target on Monday.
“It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting,” Fed vice chairman Philip Jefferson told the Mortgage Bankers Association conference in New York.
IMF say economy set for ‘soft landing’
The UK economy is set for a “soft landing” as it grows faster than previously expected following recession last year, according to the International Monetary Fund (IMF).
However, the global financial agency stressed that ambitious structural reforms to improve living standards “are urgently needed” ahead of a general election later this year.
It also cautioned against any pre-election tax cuts and indicated Government could bring in more funds from taxes linked to carbon usage or road vehicles.
The IMF said in a new report on the health of the UK economy that GDP (gross domestic product) in the country is expected to grow by 0.7% for 2024, following 0.6% growth over the first quarter.
It represents an upgrade from the IMF’s previous prediction of 0.5% growth for the year.
What will happen to services inflation?
Pantheon Macroeconomics said it expects services inflation to fall to 5.4 per cent in April from 6 per cent in March.
Luke Bartholomew, senior economist for Abrdn, said that services inflation will likely be more important for policymakers at the Bank of England than the overall inflation figure.
“While returning inflation to target is psychologically significant, and symbolic of how much progress has occurred since inflation peaked above 11%, it is unlikely to be the number watched most closely by the Bank of England and investors,” he said.
“If services inflation comes in line with expectations, this will keep a June rate cut in play.
“But a large upside surprise will likely see the market scale back its bets on a June cut, and start to look to August for the beginning of the easing cycle.”
BREAKING
The rate of Consumer Prices Index inflation fell to 2.3% in April from 3.2% in March, the Office for National Statistics said.
Sunak: ‘Major moment' for economy
Today’s drop in inflation is a “major moment” for the economy, Rishi Sunak has said.
“This is proof that the plan is working and that the difficult decisions we have taken are paying off,” the prime minister said.
“Brighter days are ahead, but only if we stick to the plan to improve economic security and opportunity for everyone.”
Reeves: Not the time for a ‘victory lap'
Rachel Reeves welcomed the drop in inflation but warned now is not the time for a “victory lap”.
“Inflation has fallen, but now is not the time for Conservative ministers to be popping champagne corks and taking a victory lap,” the shadow chancellor said.
“After fourteen years of Conservative chaos families are worse off. Prices in the shops have soared, mortgage bills have risen and taxes are at a seventy year high.
“Rishi Sunak is now putting family finances at risk again with his £46 billion unfunded policy to abolish national insurance that will mean higher borrowing, higher taxes or the end of the state pension as we know it.
“It’s time for change. Labour’s first steps will deliver economic stability so we can grow our economy and keep taxes, inflation and mortgages as low as possible.”
Cost of living crisis not over - TUC
The cost of living crisis “is not over – no matter how much ministers pretend it is,” a union has said.
“Prices are still going up. Food and energy bills are much higher than a couple of years ago. And many are being hit by soaring mortgage repayments,” TUC general secretary Paul Nowak said.
“While it’s good the inflation rate is lower, millions up and down the country are still having to cut back on everyday essentials as they struggle to makes end.
“That’s because household budgets have been decimated by the highest price rises in the G7 and wages have flatlined over the last 14 years.
“Pay packets are still worth less today than in 2008, with working people on course to end this parliament poorer than at the start.
“Make no mistake - the Tories have delivered the worst period for living standards in generations.”
Inflation drop ‘good news’ but wages still catching up
The drop in inflation to near the Bank of England’s target of 2 per cent is “good news” but wages are still catching up with post-pandemic price increases, a think tank has said.
Carsten Jung, senior economist at IPPR said: "Inflation temporarily falling close to the Bank of England’s target is good news, but wages are still catching up with post pandemic price increases. This is why it’s important that the Bank does not hamper the UK’s nascent recovery by leaving interest rates too high for too long.
“The Bank has tightened the screws too much and this will hold back the economy and wage growth going forward. They recently admitted that inflation is falling faster than it originally thought, suggesting an earlier reversal in policy.
“Looking back, it is clear that the government could have done more to shield people from inflation. Other countries like France and Japan were more proactive in easing price increases and did more to stop firms from amplifying inflation via shielding their profits. Especially on profits there are still actions it can take.”
Bank may ‘exert caution’ on interest rate cut
The lower than expected drop in inflation may lead the Bank of England to “exert caution” on cutting interest rates, a think tank has said.
Paula Bejarano Carbo, NIESR Economist, said: “Inflation has fallen to its lowest level in almost three years. This is positive news, however inflation remains above the Bank of England’s 2 per cent target and core inflation is still higher than its historical average at 3.9 per cent.
“Paired with last week’s strong wage growth data, we believe that elevated services inflation will remain an upwards risk to inflationary pressures in the second half of this year.
“As a result, the MPC may exert caution at its upcoming meeting and hold interest rates, despite today’s encouraging fall in the headline rate.”
Inflation figutes ‘set stage’ for interest rate cut - CBI
The latest inflation data sets the stage for interest rate cuts in coming months, the Confederation of British Industry (CBI) has said.
Alpesh Paleja, CBI lead economist, said: “A big fall in inflation was always on the cards for April, given Ofgem’s 12 per cent cut to the energy price cap. Households and businesses will welcome a more benign inflationary environment, but it’s worth noting that many will still be struggling with a high level of prices, particularly in food and energy bills.
“Today’s data further sets the stage for interest rate cuts in the coming months. While the Monetary Policy Committee is likely to reduce interest rates over the summer, they are still holding out for more definitive falls in measures of domestic price pressures.
“It’s encouraging that pay growth is now a touch below the Bank of England’s forecast, but there’s still a long way for it to get closer to levels consistent with inflation at target.
“The Bank will also be mindful of growing upside risks to inflation in the near-term: with the growth outlook improving at home, and tensions in the Middle East threatening to stoke commodity prices and supply pressures globally.”
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