UK inflation stays at 4%, but what does it mean for markets and clients? Reaction

by | Feb 14, 2024

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Data released from the Office for National Statistics (ONS) this morning has revealed that UK CPI inflation for the year to the end of January rose by 4.0% – the same rate as in December. According to the ONS, the largest upwards contributors to the monthly change were housing and household services (principally higher gas and electricity charges) while the largest downward contribution came from furniture and household goods, and food and alcoholic beverages. Food prices saw their first monthly fall for over two years.

But what does this data mean for advisers and their clients still under the cosh from the cost of living crisis? The main consequence of today’s inflation data is what it might mean for the Bank of England at its next MPC meeting – and when we might begin to see a reduction in UK interest rates. Today’s data shows inflation is still some way ahead of the Bank of England’s 2% target of course.

Experts from across the financial services sector have been sharing their reaction to the inflation data with IFA Magazine today as detailed below:


Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said: “Inflation in the UK came in at 4% as measured by the Consumer Price Index (CPI) in the last 12 months to January 2024, the same as it was in December 2023. Including housing costs, inflation came in at 4.2%. This was lower than expectations, but the resilience of headline inflation should come as no surprise, especially given the issues with shipping in the Red Sea and rising household energy prices.

“In a brief respite to the consumer, food prices fell from 8% to 7%, but prices have increased by 25% over the last two years, which is staggeringly twice the rate of increase in the preceding decade. Core Inflation, which is the most important input in the Bank of England’s interest rate policy, remained at 5.1%, the persistence of which will weigh heavily on the intention of cutting rates this year.

“Markets have been exuberant about rate cuts early this year, and will now have to temper expectations given the resolute nature of inflation. The flip side of this is the longer interest rates remain elevated, the longer the strain on households and businesses alike. Thus, the situation brings to mind Odysseus being caught between Scylla and Charybdis.”


Danni Hewson, head of financial analysis at AJ Bell said :

“The uptick in the energy price cap had us all rushing to take our meter readings whilst nursing new year hangovers, but the increase didn’t push up inflation in the way many had expected.

“Retailers battered by sluggish Christmas sales grabbed their red pens and slashed prices on leftover party frocks and big-ticket items that would appeal to homeowners willing to grab those impressively discounted offers.


“But the best news for all households came from falling food inflation, with prices actually coming down on a month-by-month basis for the first time in more than two years, a factor which helped offset other cost pressures.

“There might be a couple of plot twists, a little added suspense, but simple arithmetic suggests that inflation will continue to edge closer to the Bank of England’s two percent target as the year goes on.

“Market expectation of when interest rate cuts might finally be on the table took a bit of a hit following the latest wage growth data. Today’s more positive news has at least stopped the sneaking suspicion that perhaps those MPC members who have consistently voted for another hike might have been onto something.

“The small percentage factoring in an increase at the next meeting have now jumped back into the hold firm camp, with five percent even optimistically considering that a cut might just be a possibility once again.

“But in real terms prices are still rising and many people are still struggling. The cost of living crisis might not be an everyday headline any more but it’s not over and for those on the lowest incomes it’s likely to remain an issue for many months to come.”

According to George Lagarias, Chief Economist at Mazars, there’s no reason to be pessimistic about UK inflation with the largest monthly drop in a year as he explains:

“Quite frankly, I see no reason to be pessimistic about UK inflation. While the headline number remained steady at 4%, it was in line with what markets were expecting, mostly because of the year-on-year effect. Instead of focusing on the annual number, investors should take a closer look at the monthly figure, which shows that fell by 0.6% in January, the largest drop in a year. For the past five months, prices have are unchanged on average. 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.”

Karen Barrett, CEO and Founder of comments: “Although this is not the worst outcome, today’s data is hardly comforting for homeowners struggling with their mortgages, but there are still opportunities elsewhere that people can capitalise on to strengthen their finances.

“Thinking longer-term, the Bank of England is still struggling to control the direction of inflation – so it’s critical the government steps up with its upcoming Spring Budget to to help everyone improve their finances.
Firstly, income tax and national insurance bands must be unfrozen. This ‘stealth tax’ has meant millions have ended up paying more tax despite no official hikes. It’s essential the government stops quietly trimming annual tax allowances, too.

“As things stand, in April, the dividend allowance will be cut from £1,000 to a mere £500 and the capital gains tax allowance will fall from £6,000 to £3,000. This is not the way to enable people to effectively plan for their financial future.

“Finally, the 25% lifetime ISA charge needs scrapping, so that people can withdraw money if they need to without losing out on cash they’ve worked so hard to save.

“The property cap of £450,000 is also highly unrealistic for much of the country and urgently needs looking at, especially given today’s market.”

Rachel Winter, Partner at Killik & Co, said: “Yesterday’s unexpectedly strong wage data had led many to expect an increase in inflation, and therefore today’s flatlining figure should be taken as good news. Wage growth remained strong at the end of 2023, and this could have led to more disposable income and put upward pressure on prices.”

“Inflation is still far below the peak of 11.1% that it hit in late 2022, and the Bank of England expects it to fall below the 2% target rate before the end of this year.” “We continue to remain optimistic for 2024. Markets tend to move based on what is expected to happen in the future rather than what is happening right now, and the recent positive movements in markets suggest that there are better times ahead. That said, investors should continue to closely monitor macroeconomic trends, stay flexible, and ensure portfolios are well diversified.”

Michael Metcalfe, Head of Macro Strategy at State Street Global Markets, said:

“Our online data from PriceStats had pointed to some risks of a downside surprise to UK inflation in January, but the fall was bigger than even we anticipated. Base effects should now set up a very sharp fall in the annual inflation rate in the next four months. This may yet be enough based on January’s benign reading to get the inflation rate near enough to target to allow the BoE to begin its easing cycle in June.“

Rob Morgan, Chief Investment Analyst at Charles Stanley, comments: “There is a little bit to love for the Bank of England (BoE) in today’s inflation numbers, although it’s no bed of roses for consumers. The Consumer Prices Index (CPI) remains over twice its 2% target coming in at 4.0% in the year to January 2024, the same rate as December. Core CPI, which excludes volatile energy and food prices, also remained steady at 5.1%.

“Inflation looks as though it will subside quite quickly over coming months as higher interest rates increasingly weigh on growth and household spending power, and as previous hefty rises fall out of the annual calculation.

“Yet the UK’s rocky relationship with inflation could continue. The helpful base effects from energy and food could subside, and a clutch of household bills are set for significant increases this spring. Wages are also still rising at a decent clip, as indicated by yesterday’s employment data, which could put some upward pressure on demand. The Bank itself predicts that price rises will reaccelerate in the second half of the year, reflecting the persistence of inflationary pressures.

“Interest rate cuts are on their way as the inflation trend is looking favourable. Overall, there is currently insufficient evidence of a concerted economic weakening that might make the Bank think about cutting at the next meeting of the Monetary Policy Committee on 21 March. There will be another batch of inflation and other economic data before then, though, so the picture could change.

“February’s CPI figure is likely to be markedly lower and, if so, could offer the BoE more confidence to start easing. However, this process may not commence until the second half of the year, and we are likely looking at rates north of 4% until 2025, a more difficult time for borrowers but welcome respite for savers who have until recently seen the spending power of their savings dwindle.”

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