12th April 2016
The UK inflation rate has risen to 0.5% in the year to March from up 0.3% in February with the Office for National Statistics blaming rises in air fares and clothing.
The rate has increased gradually since October 2015 although is still relatively low in the historical context. The ONS says these upward pressures were partially offset by a fall in food prices and a smaller rise in petrol prices than a year ago.
We bring you a range of expert views below.
There are bigger concerns about the economy
Andy Scott, economist, HiFX says: “UK inflation picked up more than expected last month in an encouraging sign for the Bank of England that companies are becoming more confident about continued spending as they raise prices. Sterling rose to its day’s highs against the Dollar (above 1.43) and the Euro (1.25) as the CPI data continued to slowly edge back higher after last year when it was zero, the lowest since records began.
“Given that the overall picture of the UK economy is mixed – with the labour market still looking healthy but GDP growth likely to have slowed in the first quarter amid deep uncertainty over the global economy and the EU referendum – we don’t expect the BoE to sound any less cautious on Thursday.
“An uptick in inflation will no doubt be welcome among the MPC, but there are bigger concerns over the economy that we see as likely hold their focus on supporting growth in the months ahead. Sterling continues to be buffeted by changes in risk sentiment in the market with the polls still showing June’s vote could go either way, a situation we expect to continue until the biggest known unknown in a generation is settled. In such an environment, corporates should aim to have high levels of hedging to protect themselves against negative fluctuations, which could be up to 10% in either direction in the days following the result.”
Investors should be glad to avoid deflationary spirals
Adrian Lowcock, head of investing, AXA Wealth says: “Inflation has returned in 2016 following a year where it averaged 0%. CPI, at 0.5% in March, was driven by higher transport costs as an early Easter resulted in higher Air fares than this time last year. The effects of the weaker oil price will also begin to work their way through the system, whilst a weaker pound combined with rising wages means that we expect inflation to continue to recover in 2016.”
“The return of inflation in the UK will be welcome, given many investors were fearing a deflationary spiral at the start of the year as China devalued it’s currency and Japan introduced negative interest rates. However, we do not think this is a signal for the Bank of England to raise interest rates soon. Although the UK economy continues to grow, albeit weakly, the outlook for the global economy is far from healthy. Concerns over China, Europe and BREXIT will continue to dominate markets and policy makers’ decisions for now.”
UK economic growth still tentative
Helal Miah, investment analyst at The Share Centre, says: “There was some good news this morning for the Bank of England in the latest set of inflation data. Prices during March increased by 0.5% on a year-on-year basis, up from 0.3% the previous month and slightly above consensus expectations. Other price measures such as the Retail Price Index also showed a higher than expected increase. The key items in the basket which led to the rise were air fares (possibly due to an earlier Easter period) and clothing, but these were partially offset by continued food deflation and a smaller rise in petrol prices than at the same time last year.
“Sterling rose mildly on the back of these results. We believe that these price rises should be welcomed but core inflation is still a long way away from the Bank of England’s target rate of 2%. They believe that inflation will still remain below 1% for the remainder of the year and therefore the Bank of England will therefore not be in any rush to raise interest rates just yet. UK economic growth is tentative given the international headwinds and with the referendum looming, policy makers will be looking to provide some stability. With this in mind, we believe that economic conditions still remain supportive of our preferred asset class, equities.”
Inflation caused by unique factors
Calum Bennie, savings expert at Scottish Friendly says: “One swallow does not a summer make. This increase in inflation was caused by unique factors and is not indicative of a recovering economy. Indeed, inflation is unlikely to reach the Bank of England’s target of 2% this year.
“With the overall economic outlook in the UK and globally remaining uncertain, and marked by sustained low interest rates, savers will still find it difficult to achieve decent return, and either have to forego spending and put more aside in savings, or else dip their toe into stocks and shares ISAs. Consumer confidence remains low so people are spending less, prolonging the laggard economy we have in the UK.”