Nicholas Hyett, Investment Manager, Wealth Club: "The UK's disinflation story has gone down the drain this morning. Higher water and energy prices were always expected to push up inflation in April. In the event prices have risen even faster than expected - with the price of household services rising a whopping 7% year-on-year while water and sewerage costs alone up 26.1% month-on-month. The spike could cause a bit of a stink at the Bank of England, which cut interest rates just a couple of weeks ago only to see inflation smash through the 2% target. Two members of the MPC wanted to leave rates unchanged, and may well feel vindicated by today's number. Higher core inflation will be particularly concerning - since this measure of domestically generated inflation should be easier for the Bank to influence. The net effect of all this is a greater squeeze on the consumer, together with the probability of fewer interest rate cuts in the near term. Neither of those is good news for the government's growth agenda - which, despite surprisingly strong GDP growth in recent months, risks getting bogged down before the structural reforms to underpin future growth are in place."
Dean Butler, Managing Director for Retail at Standard Life said: “While inflation is significantly down from its 2022 highs, we’re not out of the woods. It still has a significant impact on the value of your money – and with interest rates now likely to fall, it’s a double hit for cash savers. This new environment means people will need to think carefully about how and where they save. Regardless of the economic environment, it’s important to have a level of easy access ‘rainy day’ cash savings for an emergency. However, if this is covered and you are prepared to accept some risk, investing can provide better returns and offer a chance to beat higher inflation – but remember the value of investments can go down as well as up. It’s also worth making sure your savings and investments are as tax efficient as possible – stocks and shares ISA’s can be an option, and if you’re able to take a long-term view, pensions offer tax relief as well as the opportunity to build up compound investment growth over the years.”
Lily Megson, Policy Director at My Pension Expert said: “This jolt in inflation is a timely reminder that there’s still a great deal of work to do to restore economic stability. While April’s wave of tax and bill hikes was expected to drive prices up, it doesn’t make the impact on household finances any less of a sting. With households already feeling stretched, the combination of steeper costs and renewed inflation pressures will make it even harder to prioritise saving. Inflation hikes have been the persistent thorn in the side of financial planning for years now, repeatedly knocking long-term goals, like retirement, off course. And whilst the government is trying to take steps to drive better financial outcomes via the reallocation of pension investments, savers need to know exactly what these changes mean for them and their money. With clarity, will come public confidence. Government, financial services and employers all have a role to play in delivering this – for example, by improving access to financial education and advice. A joined-up approach is essential to help people build financial understanding and make confident, informed decisions – especially in uncertain times.”
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