There are still “many bumps in the road” and the problem is “far from over”, despite the rate of inflation holding steady at 4% in January.
That was the warning from many in the financial-services sector today following the news the Consumer Prices Index (CPI) remains unchanged.
However, many had predicted it would rise to 4.1 or 4.2% and the better-than-expected figure has boosted hopes of an interest-rate cut in May or June.
Hymans Robertson Head of Capital Markets Chris Arcari said: “Easy wins from falling energy and goods- and food-price disinflation are largely in the rearview mirror. Further progress on inflation and the weak inflation outlook should open the door to rate cuts from the BoE this year.
“But policy makers may be a little more cautious in reducing rates than markets expect, given domestic price pressures, credibility concerns and the pre-emptive loosening of financial conditions via declines in interest-rate swap rates.
“Disinflationary factors such as demographics, technological innovation and globalisation are predicted to temper inflation over the medium to long term. However, the risk of a switch to a regime of permanently higher inflation remains elevated.”
However, My Pension Expert policy director Lily Megson said: “Late last year, the Prime Minister celebrated reaching his 5% inflation target. We were told this was a victory, but the reality was that Britons were still grappling with the repercussions of 18 months of soaring inflation.
“Now, months later, with inflation still at 4%, we can see how premature the government’s back-slapping was – and it’s not good enough.
“The government has struggled to rein in inflation, leaving Britons and their hard-earned savings to bear the brunt.
“For many, making long-term financial plans has become a minefield, and planning for retirement has become particularly difficult as inflation continues to diminish the real-terms value of people’s pension pots.
“More help is desperately needed. It’s crucial going forward that the government ramps up its support to those struggling with their finances and their financial planning.”
ZIPZERO chief executive Mohsin Rashid said: “2024 has started off in the wrong direction, adding insult to injury for those suffering from the effects of high interest rates.
“People are holding fast for some good news to take the bad taste out of their mouths, but this latest blow of sticky inflation would test the patience of a saint.”
Canada Life Asset Management investment director of Liquidity, Steve Matthews, said: “Inflation remaining at 4% will come as a surprise for many, with expectations of a slight increase in January.
“However, given the stubborn wage data seen yesterday combined with higher global energy prices and the ongoing developments in the Red Sea, there are still a number of bumps in the road for the Bank of England as it targets 2% inflation.”
