UK Inflation: glass half full

This was a slightly softer month for inflation than expected, coming in 0.1% below expectations at 2.6%. This likely gives the Bank of England the green light to cut interest rates in its May meeting.

The UK economy is not out of the woods yet. There is a long and swinging road to reach the Bank’s 2% target. Services inflation remains stubbornly high, largely due to higher housing costs (higher rents and council tax). The rise in the energy price cap is also set to see inflation jump in April.

Whisper it quietly though, were it not for a global trade war, the UK consumer would be in excellent shape. Wage growth is running at 5.6%, a further three interest rate cuts this year will drive mortgage rates lower, food inflation is slowing, as is eating out and travel. Plus with the oil price in the low 60s, energy prices look to have peaked. If the UK can escape the worst of the global trade war, it might not all be doom and gloom for the UK consumer this year, and we haven’t said that for a while.