The slide in inflation could be short lived

Laura Suter
23 May 2018
  • CPI falls to 2.4% in April

  • The drop will be welcomed by both UK consumers and the Bank of England

  • But the weak pound and rising oil price could reverse this trend

Kevin Doran, chief investment officer at AJ Bell, comments:

“UK consumers and the Bank of England will both welcome today’s drop in inflation to 2.4%. 

“UK consumers will be glad to see average wage increases starting to outstrip inflation and for the spending power of the pound in their pocket pick up further.  Mark Carney and his team on the Monetary Policy Committee will be happy to see inflation continue to fall back towards the 2% target and will reinforce their decision not to increase interest rates in May.

“However, the recent weakness in the pound and the rising oil price are a concern and could quickly reverse the drop in inflation. The jump in the oil price has started to hit petrol pumps, pushing up costs for UK consumers and businesses alike. In addition, the weak pound will be driving up input costs for many UK companies which will ultimately filter through to UK consumers in the coming months.

“If inflation does increase, UK consumers will once again start to feel the pinch.  Wage growth is currently only marginally ahead of inflation at 2.6% and interest rates on cash savings remain rock bottom so rising prices will weaken the spending power of both earnings and savings.”

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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