Inflation drops: but “core number remains dangerously sticky” – industry experts react to today’s data

by | May 24, 2023

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On the surface of it, the inflation data published this morning by the ONS might appear to be good news as the headline number dipped back to single figures. However, dig a bit deeper into the detail and there are clearly concerns that inflation is becoming rather embedded in the UK economy with so called ‘core’ inflation causing a particular headache – unfortunately it’s just not good news. Especially for anyone concerned about the cost of living crisis and the prospects for UK base rates – which is most of us!

Advisers, investment and finance experts have been sharing their reaction to today’s news with IFA Magazine as follows:  

John Choong, an equity analyst at “While Wednesday’s inflation number finally dropped below double digits, it still came in above the consensus of 8.2%. More alarmingly, core CPI ticked up to its highest level since 1992, as services spending isn’t expected to cool anytime soon. This was spurred by strong rises in recreation, culture and communication. This now leaves Andrew Bailey with no other choice than to continue hiking rates in the MPC’s coming meetings, as the core number remains dangerously sticky. As such, mortgage rates aren’t expected to return to their pre-mini-Budget levels anytime soon, with the yield of the 10-year gilt taking a huge leap this morning. Further rate hikes will also prop up Sterling, which should act as a double down on cooling inflation as it could result in ‘cheaper’ imports. Andrew Bailey is now walking a tightrope between hiking too much and causing a recession after the IMF’s optimistic forecast on Tuesday, or not doing enough and getting inflation entrenched into the economy.”


Jonny Black, Chief Commercial and Strategy Officer at abrdn, Adviser, said: “The Bank of England has indicated that this is just the start of a significant drop in inflation over the coming months, helped by falling energy prices.

“But it has also admitted that the knock-on effects in areas like wages and prices will be ‘sticky’ factors, keeping inflation still at high levels for longer. This could mean interest rates stay held at their current 4.5%, or climb even higher when the Monetary Policy Committee meets again next month.

“The start of what could be larger drops in inflation makes it more and more important for advisers to highlight to clients that lower inflation does not mean prices are coming down – it just means they’re increasing more slowly. Falling inflation is good news, but in the majority of cases it won’t be a reason for radical departure from what will be carefully developed, long-term plans. Advisers will have a critical role to play in ensuring that clients stay the course, whatever the coming months bring.”


Rob Clarry, Investment Strategist at wealth manager Evelyn Partners, comments:

In the week that Andrew Bailey, Governor of the Bank of England, admitted he was no longer relying on the Bank’s inflation models, we get another nasty surprise with April’s inflation release. Despite a 1.4 percentage point fall in year-on-year inflation compared to March, headline CPI surprised on the upside. More troublingly, core inflation recorded its highest reading since March 1992. In last month’s monetary policy committee report, the Bank highlighted that inflationary risks remain skewed to the upside, and once again this has proven to be the case.

The easing in the annual inflation rate was mainly driven by changes in the housing and household services division, particularly for gas and electricity. Monthly gas prices fell by 1.0% between March and April this year. This was driven by base effects, with the higher April 2022 Ofgem energy cap dropping out of the annual estimates.


This decline in prices was offset partially by upward effects coming from recreation and culture, alcoholic beverages and tobacco, communication, and transport. Similarly, we saw another sharp increase in food and non-alcoholic beverage prices, which increased 1.4% month-on-month and 19.1% year-on-year. The ONS estimates that this is the second highest reading in the last 45 years.

On the back of another disappointing set of data, we saw an instant reaction from bond markets: traders increased their expectations of the peak in UK interest rates from 5.0% to around 5.5%. Sterling also extended recent gains, rising 0.4% against the dollar. 

As we outlined last week, the Bank of England’s decision on whether to continue its hiking cycle will depend on the incoming data. The latest CPI data increases the probability of another increase at the June meeting.

This was another disappointing inflation print for the Bank of England. With core inflation at a thirty year high, we now expect another hike at the June MPC meeting.

Hamish Anderson, CEO at global payments and forex provider, Money Mover: “Consumers, businesses and the Bank of England alike will feel some relief at Wednesday’s fall in the headline rate of inflation. While the published rate of 8.7% is still higher than analysts’ expectations and remains above competing economies in the US and the Eurozone, it is a welcome sign that the relentless rise in prices is slowing. For the UK’s small and medium-sized businesses with customers, suppliers and operations overseas, recent cuts in energy and input prices will be welcomed. Pressure on prices has also led to spiralling wage inflation, impacting margins significantly. Even though Sterling weakness has improved their ability to export, economic uncertainty has hampered investment and growth. The entire business community will be looking for the Bank of England to signal a pause in the base rate rises that have placed immense strain on consumers and increased the cost of debt.”

Wes Wilkes, CEO at the Newcastle-under-Lyme-based wealth manager, Net-Worth Ntwrk“While inflation didn’t come down as much as expected by the Bank of England and economists, the fact that it is no longer in double digits is likely to be enough to halt the seemingly endless hammer blow of interest rate rises. We must be aware, however, that this does not mean prices are falling, but that they are simply not going up by as much. This drop in inflation can be attributed mainly to the sharp slowdown in gas and electricity prices that rose by such eye-watering amounts this time last year. However, there is a concern that ‘core’ inflation ticked up higher at 6.8%, from 6.2%. The next Monetary Policy Committee meeting may see a pause in rates but this data perhaps pushes any hopes of rate cuts a little further down the line.”

Alexandra Loydon, Director of Partner Engagement and Consultancy at St. James’s Place, comments on the reduction in UK inflation rates and its impact on the cost of living:

“It’s good to see that the UK inflation rate is back in single digits, easing to 8.7% for April. This is largely driven by gas and electricity costs remaining stable, rather than reducing. However, it’s clear than food inflation remains troublesome – at over 19%, a 30 year high and a reminder that prices are not falling but that the headline rate is showing a reduction in the scale of the increase. The labour market also remains tight, which in turn puts pressure on employers to increase pay in line with inflation.”

“The implications are that as long as the economy can hold up, the Bank of England will keep the option of interest rate rises firmly on the table. This will add to costs for borrowers, including those on variable mortgage rates. As a result, there will be little easing on the cost of living. As for investors, they will need to continue to diversify their portfolios to ensure they are as inflation-proofed as they can be and can reduce risk when markets are volatile.”

Mark Grant of Gloucester-based business finance broker, The Business Finance Branch: “A ‘milestone’ reduction in inflation to 8.7% is the first time since August that we have recorded single-digit inflation data. This could give the Monetary Policy Committee reason to pause their run of 12 successive interest rate rises. In reality, prices for consumers and businesses are still almost 9% higher than a year ago. Many businesses will take months, or maybe years, to adjust and move forward from what has been a sustained period of cost and wage inflation, long after the headline inflation rate has reduced further. On a positive note, we see our clients who forecast and plan for their cash flow faring better in dealing with ongoing cost pressures on their businesses.”

Lily Megson, Policy Director at My Pension Expert, said: “Consumers will undoubtedly be pleased to see inflation figures back in single digits for the first time since September last year. Yet the hard truth is that it has taken far too long for this to happen; there is still a considerable way to go before the conditions for the security of people’s savings improve.

“We can’t ignore the reality faced by many Britons; food and energy prices are continuing to soar, whilst over a year of rocketing inflation rates have hit savings hard. And for some, the prospect of achieving a financially secure retirement still hangs precariously in the balance. After all, My Pension Expert’s own research found that over a third (34%) of UK adults feel that the cost-of-living crisis will delay their retirement.

“It is vital that the Government commits to providing adequate support to people concerned with their future financial prospects. Free guidance is a reasonable start; however, more must be done. Ensuring individuals understand where and how they can access independent financial advice would be a powerful move to helping savers to better understand the financial situation. More importantly, doing so could help them to remain on the right track to the financially secure retirement they deserve.”

Commenting on this morning’s inflation figures, Sarah Pennells, Consumer Finance Specialist at Royal London said:

“While headline inflation has fallen, prices are still rising faster than wages and many remain trapped in a cycle of financial crisis. 

“Food inflation remains stubbornly high and 12 increases in the Bank of England’s base rate have ratcheted up borrowing costs for millions of homeowners.

“While families are making cutbacks across their everyday spending in an attempt to make their money stretch, many are still overdrawn or have to borrow before the end of the month.”

Adam Oldfield, chief revenue officer at Phoebus Software, says “We’re waking up to good news, at last.  Inflation falling into single figures is the news that we’ve all been hoping to hear and perhaps the start of things to come.  Although it is the fall in fuel prices that is the major contributor to the current rate of inflation, we can’t underestimate the effect the fuel and energy prices have across the economy.  If everyone is paying less for their fuel then the prices we pay for other goods and services should start to come down.  This virtuous circle is what we need to keep inflation going in the downward direction that the Bank of England is tasked with achieving.

“Of course, there is no guarantee that this will be enough to prevent the BoE from raising interest rates again next month.  However, the IMF has upgraded its forecast for the UK economy, which is a factor that usually has some bearing.  The housing market is showing huge resilience recently and the general sentiment appears to be positive.  The only fly in the ointment will be another interest rate rise. How lenders manage that, if they can see that inflation is going in the right direction, will be key.”

Andy Mielczarek, Founder and CEO of SmartSave Bank, a Chetwood Financial company, said: “Although today’s figures show that efforts to reduce inflation are finally bearing some fruit, the cost-of-living crisis isn’t over yet. Underlying price pressures in the economy show little sign of improvement, and despite inflation’s drop into single digits, this means that consumers will continue to be impacted by high costs. Yet this environment remains great for those able to save, as long as they’re saving in the right place.

“In the current climate, the majority of easy-access savings accounts will not be able to keep pace with inflation, meaning that a significant number of people are seeing their money losing value in real terms. Worse still, our research shows that a worrying percentage (97%) of the UK’s savers are relying on current accounts alone to house their money, while uptake for different savings products – from ISAs to fixed-rate bonds – is low across the board.

“Even though pressures on the economy are gradually easing, it’s vital that people in a position to put money away each month are proactive about how they are managing their savings to beat inflation. For those looking to deposit a lump sum, fixed-term, fixed-rate bonds can be a good option when it comes to accessing higher interest rates, while many people could also benefit from exploring their options beyond the savings accounts offered by high-street banks.”

Mohsin Rashid, CEO of ZIPZERO, said: “Inflation falling into single digits after seven long months is certainly welcome news to Britons everywhere. But we are by no means in the clear. Inflation remains at astronomic levels and, crucially, high prices continue to hit consumers’ pockets where it hurts the most: their grocery bills.

“Even with savvy spending, consumers are very limited in what they can do given the extreme price rises they have been subjected to over the past 18 months. Shoppers are having to make very difficult choices, with some even skipping meals, relying on food banks, or getting into debt to put food on the table for their household. Britons need relief from endless price hikes; equitable solutions must be found between supermarkets and their customers.”

Chieu Cao, CEO of Mintago, said: “While it’s encouraging to see inflation falling, the financial burden faced by Britons is set to remain steadfast, and many people will feel like their finances are spiralling out of control.

“Ultimately, there is no quick fix. Yet with Mintago’s research finding that just 29% of employees have received financial wellbeing support from an employer that has actually improved their financial situation, it is blatantly clear that millions of individuals are being under-supported. Something needs to change, and fast.

“Employers cannot just talk the talk about financial wellbeing, but they must also walk the walk. Nor can they rely on a one-size-fits-all approach to providing financial wellbeing support. Instead, employees must be given access to robust, meaningful support measures suited to the current economic climate; measures that, crucially, meet the unique needs of each and every individual.”

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