The UK inflation rate has fallen to 2.8% in the 12 months to February, as investment commentators talk up stagflation fears.
Released ahead of Chancellor Rachel Reeves’s Spring Statement at 12.30pm today (26 March), inflation figures dipped mainly due to a fall in the price of women’s clothes, according to the Office for National Statistics. This was partially offset by small increases elsewhere, in alcoholic drinks for example.
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The inflation rate came in lower than expectations – analysts had expected the figure to be 2.9% – and is down from the 3% recorded in January.
Investment commentators have warned of a “cocktail of risks” ahead.
“With Rachel Reeves up at the despatch box later today to reassure not only investors, but the nation that the economy is doing just fine, today’s inflation figures are a reminder of what lurks ahead,” said Lindsay James, investment strategist at Quilter. “Inflation came in at 2.8%, with core inflation remaining very sticky at 3.5%. While this is only moderately above target, the news looks fairly bleak as we move through the year, leaving the government with plenty of work to do.
“There is a cocktail of risks right now for the UK when it comes to inflation, and this is only adding to the ‘stagflationary’ fears. Economic growth is miniscule and risks going backwards, but should inflation continue to refuse to get back near the 2% target, it is difficult to see what the Bank of England can do with interest rates. Not cutting or not doing it quick enough may be enough to tip the economy back into recession, but cutting too soon or to quickly and you risk adding fuel to the inflationary fire.”
James also pointed to energy prices, which are due to climb as the price cap rises in the coming months, and with uncertain economic policy in the US, the outlook for inflation “looks decidedly negative”.
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Meanwhile, Jonny Black, chief client experience officer at aberdeen Adviser, warned of the impact of sudden shocks in the economy: “Inflation may have dipped, but the road ahead is anything but smooth, and the Bank of England still expects it to peak at 3.7% by summer.
“And, in such volatile conditions, sudden shocks in the global economy could push this higher, faster.
“Investors and savers shouldn’t be complacent and financial advisers will continue to play a vital role in helping people achieve their financial goals. The cost-of-living squeeze is far from over, and those sitting on cash savings risk watching their money gradually lose value in real terms. Considering seeking a higher return for those funds – potentially by investing in non-cash assets – will be important for keeping ahead of inflation’s bite.”
This story was written by our sister title, Portfolio Adviser
