UK inflation shrinks to 10.1% in January: what are the implications and have we seen the peak? Reaction

by | Feb 15, 2023

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The latest ONS January inflation data published this morning, has showed that UK CPI inflation has shrunk marginally to 10.1% year on year to the end of January. This compares to a 10.5% figure for December and – looking on the positive side – is marginally better than many analysts had been predicting. Following the ONS inflation report, advisers, mortgage brokers and investment experts have been sharing their reactions with us today as follows:

Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management: “Prices fell in January by 0.6% month on month. Taking the last three months together and annualising them, you get inflation dropping sharply to 2.4% this year. This is great news for consumers, for borrowers and for investors in UK government bonds. The Bank of England should now pause its hiking spree and await further data. It’s fair to say that inflation in the UK has now peaked.”

Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial: “Inflation coming down faster than expected means it’s slightly less likely the central bank will hike rates by 0.5% next month, although that’s still the most accepted direction of travel. Inflation should nosedive in a few months and even be back down to the 2% target by the end of the year so bank rate cuts are coming. The sensible thing for the Monetary Policy Committee to do now would be to pause and take a breath, and release the thumb screws that are inflicting so much pain on homeowners.”

John Glencross, CEO and Co-Founder of Calculus said: “The UK has shown remarkable resilience despite significant uncertainty caused by rising interest rates, supply chain issues, increases in wages and a worsening cost-of-living crisis. Demand for growth capital remains at unprecedented levels and there is now a real opportunity to provide meaningful support to a new generation of UK companies driving the digital revolution forward, improving healthcare and creating jobs and opportunities throughout the country.

 
 

“Knowledge intensive companies within technology and healthcare – two of the UK’s fastest growing sectors – operate in an exciting investment landscape due to the UK’s strong presence of research universities, robust Government support, and thriving M&A market. The UK’s technology sector leads the European market, having raised double the amount of VC funding of any other country in 2022. Meanwhile, the UK healthcare sector has, in recent years, been a world leader in fighting pandemics and advancing patient care.”

Lewis Shaw, founder of Teesside-based mortgage brokerRiverside Mortgages: “It’s positive to see the inflation figures moving in the right direction but there’s still a huge gulf between where inflation should be. This won’t stop the Bank of England from hiking the base rate again on 23rd March at the next MPC meeting. It should, but it won’t. It seems the most likely hike now will be 0.25%, and we have to hope most of this is already priced in. For mortgage borrowers, this means rates will stay broadly where they are for the rest of this year. In the past few days, we’ve seen swap rates nudge up, which is probably the nail in the coffin for any meaningful fixed rate reductions. This is the new normal and we all need to accept it.”

Jonny Black, strategic director at abrdn, Adviser, said: “The rate of inflation has now dipped for a third month in a row, which indicates the pressure experienced by households and businesses should continue to ease this year. 

 
 

“However, while the rate of inflation is falling, this still merely shows that prices are rising more slowly than they were before. Like businesses across the economy, advice firms are battling cost increases in everything from labour to energy and our own research found that 85% of financial advisers are worried about rising overhead costs over the next half-year. 

“Advice firms want to reduce their costs per client while increasing the number of profitable clients per adviser. One way to do this while mitigating overhead cost rises is through platform technology. The pandemic has forced many advisers to reassess their technological capabilities. Striking the right balance between digital and in-person services means advisers can provide the quality of service their clients have come to expect.” 

Rhys Schofield, managing director at Derbyshire-based mortgage advisers, Peak Mortgages and Protection: “Inflation is definitely falling as the global issues such as high fuel prices caused by Putin have subsided, so inflicting further financial pain on households is a bit pointless. However, pointless or not the Bank of England has to be seen to be acting tough lest the markets get spooked so it may be forced to do something and raise rates again. All that being said, with inflation on the wane, and the base rate not looking likely to peak as high as had been feared, mortgage fixed rates have steadily been coming down over the coming months anyway.”

 
 

Richard Ollive, Senior Financial Adviser at Wesleyan, said: “It may feel like we’ve turned a corner, but it’s critical to remember that prices aren’t going to start falling – they are going to keep rising, just not as quickly. Pressure on budgets will still be painfully tight, especially if people’s pay packets haven’t grown as quickly as their bills. And there is still every chance of another interest rate rise in the near future, which could heap more pressure on finances.

“We see our customers facing the challenge of funding this higher cost of living while also doing what they can to keep their long-term financial plans on track. Banks are dragging their heels in passing on interest rate rises, so we recommend that anyone who is able to put some money aside should make it work as hard as possible and keeping pace with inflation. Starting, or growing, investments will be important here – giving money the strongest possible chance of achieving real-term growth.”

Commenting on the decline in UK CPI Andrew Aldridge, Partner at Deepbridge Capital, said: “Today’s inflation figure of 10.1% for January—paired with last week’s better-than-expected GDP figures—is a promising sign for the UK economy, signalling that it is on the road to recovery. With inflation expected to continue falling this quarter and fiscal policymakers working hard to restore confidence in the public markets, Government initiatives such as the Enterprise Investment Scheme have never been more important for entrepreneurs, investors and financial advisers alike; supporting home-grown, high-growth and innovative business.“ 

Adam Oldfield, Phoebus Software’s chief revenue officer, says “All in all the UK economy seems to be defying predictions with GDP up and now inflation easing more quickly than many had thought.  Although the percentages are small it is a step in the right direction.  Nonethless, we heard only yesterday that real wages are struggling to keep up with inflation, so we have a way to go before that situation changes and people start to feel like they are in pocket rather than out.  This will not be helped in the coming months if energy prices increase to the level that we have been told to expect.

“This is a crucial time for both lenders and brokers.  Ensuring that existing borrowers have the best deal and that exposed borrowers are getting the best advice and help to try to ensure that the recent small rise in arrears isn’t an increasing trend.

“No doubt the question for many now is, will this drop in inflation be enough for the Bank of England to hold interest rates at their current rate, or will we still see another rise when the MPC next meets in March?  As we head into spring, a traditionally more buoyant time for the housing market, this could be key for momentum.”

Mark Grant of Gloucester-based business finance broker, The Business Finance Branch: “While prices are still rising at 10.1% year on year, a lower figure than last month and a bigger fall than predicted in January is good for business sentiment and confidence in the months ahead. It may well reinforce the Bank of England’s forecast that we are at or near the top of the interest rate-raising cycle. Businesses need the confidence to invest and hire staff and this improving inflation figure – while still high – could contribute to that.”

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