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UK inflation hits 9% as talk of recession and stagflation mounts – finance experts comment

Arrow to signal inflation

Although today’s announcement from the ONS that UK’s April CPI inflation has reached a 40 year high was roughly in line with expectations, some of the detail included in the report makes for very tough reading indeed. While electricity prices have gone up by 53.3% in the year to April 2022, gas prices have risen by an eye-watering 95.5% over the twelve month period. If there was any doubt that we’re living through a massive cost of living crisis, these have been dispelled by today’s data. But brace brace, we also must be prepared for further rises as expectations are that we’ve not reached the peak yet and the prospect of double digit inflation looms large.

So what do finance and investment experts think are the implications of today’s latest data and the cost of living crisis?

Jonny Black, strategic director at abrdn, Adviser, said: “Today’s spike in inflation could drive even further demand for advice, particularly from those approaching or already in retirement.

“Our own research found just 15% of people retiring this year have looked at how their savings can outpace inflation, while more than a quarter (27%) are unsure of how to mitigate inflation’s impact on their income. Many advisers and their clients are already having conversations about how to adapt their finances amid the rising cost of living. But for those yet to discuss it, reviewing areas such as clients’ investment allocations and cashflow and income planning may become invaluable.

“There is the very real possibility that the Bank of England will increase interest rates again. If this pattern continues, and consumer and business confidence continues to suffer, advisers also need to be ready to support their clients during an economic downturn.”

Les Cameron, savings expert at M&G Wealth, said: ”As inflation rates continue to creep upwards and savings rates remain low, it has never been more important to think about what that means for your money, not just now but in the future.

“Those with savings, particularly those with cash or cash-like savings, need to seriously think about how their money is going to work for them over the long term. For many this will be a decision of whether to accept inflation risk eroding the value of their money or taking investment risk to try to grow, or at least a maintain, the real value of their money.

“Persistently high levels of inflation are particularly going to affect those who are trying to save for their retirement and will now need to save more to be able to have the retirement they planned, as well as those most affected by the cost-of-living increases, such as pensioners and the new generation of homeworkers whose energy bills are rising.”

Martin Lawrence, Director of Investments at Wesleyan, the specialist financial services mutual, said: “Inflation has turned into a runaway train, moving to the highest point we’ve seen in decades and further off track from the Bank of England’s 2% target.

“We’re likely to see this landscape of high inflation for some time to come, so further interest rate rises are almost inevitable. As a result, there is a growing risk of a potential UK recession on the horizon and, combined with soaring living costs for households, today’s news is unsurprising but unwelcome.

“Most families’ budgets are maxed out, but for those able to keep some money aside they need to make sure it is working as hard as possible and not languishing in accounts with low-level interest rates that will fail to keep pace with inflation.”

Danni Hewson, AJ Bell financial analyst, comments: 

“It’s a massive jump from seven to nine percent in just a month but anyone in charge of household budgets won’t be surprised. Nor will they be surprised that the colossal hike in the energy price cap, which horrifyingly protects consumers from the worst effects of energy inflation, makes for the biggest contribution to the jump. Finding the extra £700 a year just to heat and power homes would have been a shock all by itself but when it comes alongside record high prices at the pump and food inflation, adding tens of pounds to the weekly shop, there’s little wonder poverty campaigners are pushing hard for the government to take further action.

“Dubbed ‘Awful April’ the month brought about a slew of rises as mobile phone operators put up their tariffs and the government’s VAT reduction on hospitality also ran its course. Popping in for a coffee suddenly became just that little bit more expensive, a thousand cuts slicing away at wage packets that simply aren’t keeping up with the pace of change.

“April blasted through budgets like a perfect storm as a resurgence of global demand clashed with a sudden supply shock brought about by the war in Ukraine.  In the UK the added burden of that price cap change has propelled it to the top of the G7 inflation leader board, a plaudit no country wants to burnish.

“Few sectors have been left untouched because of the nature of where prices have shot up and looking forward, with prices leaving the factory gate and prices for raw materials also surging by record numbers last month, there looks to be little respite on the cards.

“Whilst the intensity of last month’s shock won’t be repeated, at least until the next price cap change in October, the one thing consumers really need – price drops – aren’t likely for many months to come. Pressure has been building for businesses to protect consumers from the worst of the hikes and in some cases that has been possible, but not all businesses have the kind of cushion which will allow them to nibble away at margins. Smaller businesses in particular are fighting their own battles with inflation and looking ahead the prospect that trade will suffer, that the much-needed dream of a post-covid boom has disintegrated, replaced by fears that recession has already grabbed hold.”

Dan Boardman-Weston, CEO & CIO at BRI Wealth Management sees the BoE as being in a rather tricky spot as UK inflation nears 10%, he comments: “UK inflation accelerated to 9% in April, up from 7% in March but slightly behind consensus expectations of 9.1%. The rate of inflation is running at the highest level in 40 years, due to large increases in the cost of energy, housing and transport, with the prospect of further pain to come as food prices continue to rise. The Bank of England is in a really tricky spot, they need to raise rates given that inflation is approaching 10% but they are raising rates into a slowing economy, which will have painful consequences. The significant increases in the cost of living, the national insurance hike and interest rate increases have started to affect consumer demand and sentiment and the economic outlook looks darker than it has for some time. We fear that any tax cuts that are being mooted by the Treasury may be too little too late in order to try and stave off a recession. The war in Ukraine has extended the runway in terms of inflation staying high but a large part of the inflation continues to look transitory in nature and we would caution against raising rates too aggressively. The Bank of England has a difficult balancing act ahead of them and we hope that inflation can be tamed without harming the economy too significantly.”

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