Commentary: UK inflation Remaining in Double Digits

LONDON (Capital Markets in Africa)- UK headline inflation falls to from 10.4% to 10.1% in February as Core inflation, stripping out food and energy prices, stays at 6.2%. Food and non-alcoholic beverages rise at fastest rate since 1977.

Douglas Grant, Group CEO at Manx Financial Group PLC: Having narrowly avoided a recession, the UK economy could be showing signs of light at the end of the tunnel. However, the latest flatlining GDP data highlighted sluggishness that may be difficult to shake off. Indeed, coupled with the global banking sector showing signs of weakness, SMEs must take this as a reminder to review their existing lending structures and ensure they are prepared for further challenges.
While many SMEs were proactive by locking their debt into fixed rate structures, it is too late for other businesses that were not as forward-thinking. Hence, the government must put in place a robust plan to help support SMEs, which are the backbone of the UK economy. According to our research, 22% of UK SMEs that required external financing or capital in the past two years were unable to obtain it. Moreover, over a quarter had to temporarily suspend a business area due to inadequate funding. It is concerning that SMEs continue to face difficulties in accessing finance, which is impeding their growth potential and depriving the UK economy of growth opportunities when it is most needed.
We have been advocating for a permanent government-backed loan scheme that is sector focused and involves both traditional and non-traditional lenders to secure the future of our SMEs. As the government explores alternative methods to sustain economic recovery, the significance of implementing a permanent scheme cannot be overstated, it could serve as a critical factor in determining the survival of numerous companies and in turn, the strength of our economy. We very much hope this is something that becomes a reality.

William Marsters, Senior Sales Trader at Saxo UK: The Pound Sterling rallied after the UK inflation metric came in hotter than expected at 10.1% yoy, compared to the expected 9.8%. Although it is a reduction from the February number of 10.4%, most will be disappointed that it remains in double digit territory.
Food and non-alcoholic drinks were the largest contributor to the high number which is a read through to the higher prices being seen by UK households. This, paired with the strong UK wage numbers we saw yesterday, will provide little comfort or assistance to the Bank of England.
Chances of a 25bps rate hike from Andrew Bailey in May is now almost certain as the central bank must do more. With most other major economies making progress in the inflation fight, the UK government will be disappointed to say the least. Especially Prime Minister Rishi Sunak who has halving inflation as one of his five priorities of 2023. After these March figures, inflation has only moved from 10.5% in December 2022 down to 10.1% – a long way to go to the “halving inflation” target.

Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘The heat has been turned down on the bubbling cauldron of prices, but inflation is still scalding and interest rates look set to be pushed up again to try and cool it down rapidly. Instead of retreating below double digits, CPI is staying stubbornly high, causing more pain for companies and consumers. The relentless rise in food and non-alcoholic beverages is vicious, soaring to 19.2% in the year to March, up from 18.2% in February. Food prices haven’t risen this quickly over a year since August 1977, when the Queen was celebrating the silver jubilee and a smaller one-pound note was introduced. The pound feels a lot smaller in our pockets right now as inflation continues to devour spending power, with wages rising so much more slowly. This insidious drain on wealth, and the worry that it’s not temporary given that core inflation, stripping out volatile energy and food prices, remains so sticky means it’s more likely that another interest rate rise of 0.25% is on the way from the Bank of England next month.
The worry that rates will continue to be hiked in the US is pervading financial markets with investors concerned that further tightening will increase the chances of recession and cause ripple effects around the world. Indices in Asia took a downbeat cue from Wall Street, after gains largely evaporated in the session. The Nikkei, Hang Seng and Shanghai Composite retreated, after Fed policymaker James Bullard, the Bank of St. Louis President, indicated he thought that more hikes are needed to counter hot inflation, dismissing downturn fears. Stocks are likely to wax and wane as further comments come through this week from other policymakers, before they go quiet ahead of decision day in May. Oil prices are trading slightly lower, with Brent hovering around $84 a barrel. Traders are weighing up the impact of a possible US recession on demand for energy against China’s faster recovery from lockdowns with factory production lines whirring more quickly.

Charles White Thomson, CEO at Saxo UK: The UK is in an economic danger zone. I am an advocate for bold plans which will unlock the UK’s potential and to break the high tax and low growth loop, but the status quo is increasingly painful and uninspiring, and this should not be about celebrating falling inflation or the avoidance of a technical recession. The UK continues to underperform its key counterparties and have underserved the majority and their aspirations. Change is required.
As opposed to talking of the Chancellor and Government, I prefer to continue referring to the UK as a PLC.  Instead of Prime Minister we have a Chief Executive Officer and for the Chancellor, a Chief Financial Officer. My resounding conclusion from the UK PLC’s recent financial statement – or budget – is that the management team are in an unenviable position in that there is little wiggle room for large change. The UK PLC is effectively in a financial straitjacket with constraints including: £2.4 trillion public debt and all the servicing costs this entails, tax to GDP levels approaching record highs or 37.5% and corporation tax moving to 25% from 19% for financial year 2023/24.  Financial outlook statements for generations of UK PLC management have concentrated on the status quo as opposed to a more dramatic plan to seriously kick start growth, confidence, and the all-important upside this brings.
We have an advantage in that UK PLC is the sixth largest global company or economy in the world with all the scale and reach that this brings. This is about a bold and large plan to ensure that we deliver on its full potential and unleash the prosperity that a large part of the UK shareholders want. The alternative to a bold and wide changing economic plan, which is not purely based on industrially low interest rates and quantitative easing, is continued stagnation and underperformance. This will not be easy, but the alternative is to sell out the next generation which should never be a consideration.