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Fall in Inflation eases interest rate pressure

UK inflation slowed to 2.5% in March, easing pressure on the Bank of England to raise interest rates in May. 

The 2.5% annual change in the consumer price index (CPI) was down from 2.7% in February. The decline suggests the inflationary effect of the weaker pound after the Brexit vote is dropping out of the figures faster than anticipated.

Howard Archer, chief economic adviser at EY Item Club, described the fall in inflation as “welcome news to consumers” and meant that a widely expected interest rate rise in May “no longer looks a racing certainty.”

Expectations of a May rate increase also eased following comments from Bank of England governor Mark Carney that its Monetary Policy Committee (MPC) was “conscious that there are other meetings over the course of this year” when it can consider rates.

Wage growth was also weaker than expected at 2.8% in the quarter to February against the same time last year, according to the Office for National Statistics (ONS).

While wages have started to grow by more than the rate of inflation for the first time in over a year, analysts had been predicting higher wage growth of 3%.

Strong employment data again accompanied the wage news. The number of people in work increased by 55,000 in the three months to February compared to the quarter before, with 427,000 more than a year ago. The UK employment rate is now 75.4%, the highest since records began. Unemployment fell to a new 45-year low of 4.2%.

ONS data also showed the first annual fall in London house prices since 2009. Home values dropped by 1% in the 12 months to February, compared with growth of 4.4% nationally. 

“The official measure of house price growth has begun to register the slowdown reported by other, timelier measures,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. “The official measure lags because it is based on completed transactions, rather than mortgage offers or asking prices. Data from the Nationwide, Halifax, Rightmove and RICS all suggest that the official measure will slow further.”

Retail sales were down in March due to the cold weather - the so-called ‘Beast from the East’. Sales volumes were 1.2% lower than in February, according to the ONS.

However, the cold weather did encourage more people to purchase goods online – internet purchases accounted for 17.4% of all retail sales in March.

Britain’s retail sector has had a difficult start to the year as consumers struggled with a squeeze on their real incomes and stayed at home to avoid poor weather.

Rhian Murphy, ONS senior statistician, said: “Retail sales fell in the first quarter due to a large decline in March with petrol sales seeing a significant slump as a result of the poor weather keeping many shoppers indoors.”

“However, the snow actually helped boost online spending with department stores in particular seeing growth in their web sales.”

 

 

 

 

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

 

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