IoD: ‘Inflation figures offer breathing space for businesses and households’

Responding to latest official inflation statistics, showing that the Consumer Price Index for the year to March fell to 2.5%, Tej Parikh, Senior Economist at the Institute of Directors, said:

“Today’s figures show a significant drop in inflation, and it is expected to continue to fall over the course of the year. This will be welcomed by the business community who have seen high inflation act as a major speed bump on economic growth ever since the beginning of last year. The drop in inflation will offer much-needed breathing space for households who have been wedged between weak wage growth and rising price levels, which in turn will hopefully bolster consumer confidence and sales activity.

“That said, any further drop in price levels toward the Bank of England’s 2 percent target growth rate will likely be gradual. While the impact of weak sterling on import costs has withered away, other cost pressures remain. A survey of our members shows that almost two in three directors expect their costs to increase over the coming twelve months. Pressures on margins including from business rates and increases to the national living wage, compounded by difficulties in raising efficiency, will offer little wiggle room for SMEs to raise wages and lower prices significantly.

“Today’s data is unlikely to cause the Bank of England to shy away from a rate rise next month. But with economic growth expected to come in weaker in Q1 owing to the snowy weather, and the need for further evidence of rising wage pressures, it will be a less clear-cut affair than anticipated.”