The latest annual inflation figures from the Office for National Statistics shows that the Consumer Prices Index (CPI) rose by 2.4% in the year to April 2018, down from 2.5% in March, and the inflation measure that includes homeowner/occupier costs (CPIH) shows an increase of 2.2% over the same period down from 2.3% in March.

The largest downward contribution to the change in the rate came from air fares, which were influenced by the timing of Easter, while rising prices for motor fuels produced the largest, partially offsetting, upward effect said the ONS.

Commenting, Philip Smeaton, chief investment officer at Sanlam UK, said:

The UK economy is in a sticky situation with inflation falling and growth disappointing. The inflation impulse from sterling’s devaluation is now fading and the low growth in Q1 has helped to reduce inflation and pause the BoE’s rate hike aspirations.  We should however not get too complacent, inflation pressures worldwide are building and although the UK economy isn’t in great shape, it likely that we’ll see stronger growth in Q2 as the adverse weather in Q1 was a major factor in the weak growth we saw in the first three months of the year.  For now, the BoE are back to the “slow and steady” approach on rate rises, but that could change as growth bounces back later in the year and higher commodity prices and global wage pressures once more revive the inflation debate.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, said:

With inflation still high and take-home pay in the first stages of recovery, the situation is finely balanced. Brexit uncertainty is still very much the order of the day, however, the effects of sterling weakness look to be waning. Mark Carney was criticised for sending mixed messages after hinting than an interest rate rise was no longer imminent, but the economic data backs up his shift in tone. With the UK economy continuing to lag behind its global competitors, solving the productivity puzzle remains the key to getting it out of the doldrums.

Chris Payne, Managing Director at GWM Investment Management, said:

There has been very little immediate market reaction to CPI inflation coming in at 2.4% and this is a reflection of general inflationary cooling in recent months. Indeed these are the most relaxed inflationary pressures in more than three years and is partly why UK rates have not picked up as quickly as predicted and sterling continues to slide."

Nikesh Sawjani, UK Economist at Lloyds Bank Commercial Banking says:

The annual rate of inflation eased for a third consecutive month in April, dipping to 2.4% and provided households with some welcome news. However, over the coming months, while the unwind of previous currency strength should continue to feed-through, the impact of recent increases in oil prices and previously announced hikes in utility tariffs should ensure that inflation proves more ‘sticky’ than it has done so far this year. Against such a backdrop, and with the economy expected to recover in the second quarter, we expect the Bank of England to hike interest rates at its meeting in August.

Simon Longfellow, Head of stepstoinvesting.com comments:

At first sight, today’s drop in inflation may come as welcome news to consumers, but let’s not forget that it still remains higher than cash savings rates. This coupled with last week’s interest rate decision means consumers will continue to see their money being eroded. Last year alone, UK savers saw the purchasing power of their money fall by £30.3bn, as inflation far outstripped the interest earned on their cash. This is because people are opting to leave their money in cash savings not appreciating that, in fact, their money may be losing value every day.

Andrew Sentance, senior economic adviser at PwC, said: 

UK consumer price inflation (CPI) has fallen back slightly in April, but recent developments suggest this is not necessarily a continuation of a sustained declining trend.

“The oil price is climbing sharply and there is speculation it could rise above $100 a barrel over the summer. Sterling remains weak as the Bank of England continues to be reluctant to raise interest rates. Wage increases are also picking up as the UK labour market continues to tighten. Meanwhile, productivity growth remains slow and may recently have gone into reverse.

“The most likely scenario therefore appears to be that UK inflation will remain stuck around 2.5 percent over the summer and could pick up in the next couple of months.

“The good news for economic growth is that inflation remains below the rate of pay increases. So wage-earners are seeing a very modest rise in their living standards. That will provide some support for consumer spending in the second half of this year and into 2019.

Peter Dowd MP, Labour’s Shadow Chief Secretary to the Treasury, said:

Inflation remains higher than the Bank of England’s target, while working people are struggling with real earnings still lower than in 2010, following eight years of Tory economic failure.

“The next Labour government will introduce a £10 per hour Real Living Wage to tackle the squeeze on wages, and build a high wage, high skill economy for the many, not the few.

TUC General Secretary Frances O’Grady said:

Today’s figure confirms the Bank of England was right not to raise interest rates. With the worst pay squeeze for two centuries, what people really need is higher wages not higher interest rates.

“The government needs to step up and get our ailing economy back on its feet. Ministers should set up a National Investment Bank, upgrade roads and rail, and bring high-speed broadband and clean energy to every part of Britain.

“We also need an end to public service cuts. Eight years of cuts have not just hurt our schools and hospitals – they’ve held back economic growth. It’s time to give public services and hard-working public servants a funding boost.

Tom Purvis, IPSE’s Political and Economic Advisor, commented:

The drop in inflation will be welcomed across the self-employed population because it means day rates are increasing in real terms.

“This is supported by the Confidence Index, released yesterday, which shows that average day rates have risen for the first time since Quarter Three of 2017.  

“There may be some cause for concern for the self-employed, however, because of the upward pressure the hotel and restaurant industry is placing on inflation. Rising prices in this sector will disproportionately affect the self-employed because they typically spend more time working away from home and don’t have an employer to pay for it.

“Overall, however, today’s figures are welcome news for the self-employed. The Government must not reverse this by extending the reforms to IR35 into the private sector or lowering the VAT registration threshold.

“Both of these measures would not only directly harm the self-employed; they also risk contributing to higher inflation because the price of goods and services would inevitably rise. The self-employed are one of the economy’s – and the Government’s – greatest assets; with the uncertainty of Brexit looming, it should strive to support, not scupper them.

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