Inflation slip pushes rate rise further back

Added 17th May 2016

Consumer Price inflation slipped to 0.3% year on year in April from 0.5% in March, the Office for National Statistics said today.

Inflation slip pushes rate rise further back

The fall was widely seen as signalling an interest rate rise may be as far away as 2018, and even slightly opened the door to the prospect of a rate cut.

The uncertainty stemming from the upcoming referendum on European Union membership was cited as a significant factor in the softening of price growth.  

“The market can barely see when there might be another rise, and at the moment is plumping for 2018,” said Andrew Wilson, head of investment at Towry. “Core inflation was also down, from 1.5% to 1.3%, and this might further feed the narrative that the UK economy is materially slowing down, and largely due to uncertainties around potential “Brexit”.

“In reality the economic slowdown is global in nature, and of significant concern to investors,” Wilson continued. “However, for now it still appears that the second half of the year can prove to be stronger, and so we will stay on “recession watch” but without yet taking evasive action.  Investors’ ability to adapt and be opportunistic will be crucial for the rest of the year, as both the Referendum and the Presidential election are liable to generate excess volatility, and market over-reaction, in both directions.”

Ian Forrest, investment analyst at the Share Centre noted that certain sectors of the index were a bigger drag on prices than others.

“April’s fall in inflation was the first since September last year and was mainly due to a drop in air fares and clothing prices, the cost of second-hand cars and social housing rent,” he said. “To some extent the fall in air fares was influenced by the timing of Easter this year. The Office for National Statistics reported a rise in the cost of motor fuels and, interestingly, food prices remain unchanged between March and April. While inflation is still expected to be below 1% for the rest of the year it was interesting to see data from the ONS today that house prices have risen 9% over the past year and the oil price has recovered sharply in the first four months of the year.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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