Mazars chief economist George Lagarias highlighted the monthly figure, which showed inflation fell 0.6% from December, the largest drop in a year.
“Quite frankly, I see no reason to be pessimistic about UK inflation,” he said. “If the pace is maintained, in the next four months, we will see much better headline numbers, as we put the high inflation figures from February to May 2023 behind us.”
UK wage growth defies forecasts but slows to lowest level in more than a year
Daniel Casali, chief investment strategist at Evelyn Partners, added the figure was “benign” and suggested the “broad downward trend in inflation is continuing”.
“We see disinflationary pressures driving the rate down towards the Bank of England’s forecast of around 3% in Q4 of this year,” he argued. “Importantly, headline CPI inflation is running slightly below the BoE’s forecasts over the last few quarters.”
While Neil Birrell, CIO at Premier Miton Investors, agreed the figure was “a little better than expected” and likely to be taken as “good news by those looking for rate cuts sooner rather than later”, he warned the Bank of England is “still unlikely to be driven into any decisions that will risk the journey back towards target being jeopardised”.
Investment director of liquidity at Canada Life Asset Management Steve Matthews agreed, noting the lower-than-expected CPI figure was accompanied by “stubborn wage data…higher global energy prices and the ongoing developments in the Red Sea”, which means today’s release supports the BoE’s “England’s cautious stance on cutting rates any time soon”.
Hotter than expected US inflation tempers Fed rate cut expectations
However, Nicholas Hyett, investment manager at Wealth Club, argued the falter in disinflation has left rate setters “with more questions than answers”.
“With inflation still double target a run of steadily falling interest rates, which set stock markets dancing before Christmas, now looks less likely,” he said.
“But a lack of cuts could feed through to higher interest rates in the mortgage market, which had already started to price some cuts in. From the Bank of England’s perspective that would have a similar effect to a new series of rate rises (something it is likely to want to avoid given the delicate state of the economy).
“Increasingly there are no good options for central bankers.”
Read the full article here
