UK Inflation: Drumroll, but There’s More Drama
Big shots at CMC Markets are warning that the rollercoaster of UK inflation is far from a smooth ride. When headline CPI slipped to 8.7% in April, experts felt a tiny sigh of relief – a 0.5% drop was on the cards. Still, the price climb is keeping pace, leaving many wallets feeling the squeeze.
What’s the Deal with the Ofgem Price Cap?
Unlike a mega‑discount, the new Ofgem price cap is barely sparking joy for households. It’s mostly a “no big change” announcement, which means your energy bill still stays stubbornly high. On a lighter note: if it were a party, this is more like the “everyone has their own budget now” vibe.
The Three Scenario Scare Dessert
- Consumer Crunch: More money out of hand, less in purse, plus loyalty cards won’t bargain.
- Rate‑Rise Reboot: The Bank of England might bump the base rate higher again, turning savings into a real-life horror show.
- Recession Roadtrip: If the economy slows, we could see a graph slide into the red, and that’s no cute bumper sticker move.
Though the future feels like a party guest clearing out your pocket, there’s a glimmer of hope that the relentless rate hikes might finally pause. Imagine a long refill after a marathon – the end could be in sight.
Inflation Numbers: Grocery Edition
Grocery prices danced down just 0.1% in April – a bit like a sloth slipping on ice. Yet the annual rise at 19.1% keeps the cost‑of‑living rollercoaster rocking. It shows that while a single product might wobble, the entire basket keeps climbing.
Expert Insight from Michael Hewson
“Right from the Kantar grocery figures last week, we’re seeing food inflation easing,” says Michael Hewson, Chief Market Analyst at CMC Markets. “May’s grocery numbers hit 17.2%, but that “glacial” pace suggests a slow thaw might be coming. Until then, we’re all keeping a close eye on those speed bumps.”
Three scenarios: 0.25% rate rise, further consumer squeeze or recession
The Big Picture: 3 Potential Paths for the UK Economy
Hewson is painting a pretty gloomy forecast for what lies ahead, but his scenarios aren’t all doom‑and‑gloom. Let’s break them down, add a sprinkle of humor, and see how they might affect our wallets and the economy at large.
Scenario 1 – A Quirky Rate Hike
- Rate goes up by 0.25% in June – no big surprise.
- Mortgage rates will climb, making your monthly payments a bit less exciting.
- Hewson calls it “the necessary bump to keep inflation from dancing on a rug of unease.”
Scenario 2 – The Freeze‑and‑wait Approach
- Keep the base rate flat at its current level.
- Let inflation run its course – like a stubborn toddler refusing to eat veggies.
- Consumers already feel the squeeze: Food prices are almost 20% higher than last year!
- Expect persistent consumer price pressures that are going to keep folks burning their wallets for better futures.
Scenario 3 – Recession, but with a German Twist
- UK journals a recession similar to what Germany is galloping through.
- Reduced household & business spending, a wave of less‑in‑demand debt, and a rise in unemployment.
- “This isn’t a weekend fluke,” says Hewson, noting that “you’d see two consecutive quarters of negative GDP growth to lock the recession in.”
How the Bank of England Just Changed its Mind
While the Bank predicted a recession earlier this year – a plunge of –0.7% by the end of 2023 – it has now pivoted, hinting the economy could grow by 0.25%. After all, a 0.2% growth in Q1 and the same in Q2 might feel like a welcome win battle in the impatient premier league of finance.
— Yet, it’s worth remembering five months ago, the Bank expected a recession that lasted a few years. So their play‑book has a slightly dusty record. Still, who am I to cast doubt while a panel of fiscal experts try painting the bigger picture?
Hewson’s Bottom‑Line Takeaway
- “Do nothing, and inflation will demo the market longer; give it a bump, and show the government is trying; or go all in, and risk recession.”
- Way to go, Hewson! You’re torn between a “let’s not be bothered” strategy and a “let’s put the economy in a dare‑devil stance” whereas the blame tag can be
- [Hewson crowd praised him for exact political science]
So no matter the route, folks are bracing for a slower quincy and hungry for decisions that matter – with antih
notes that it’s still about “ensuring you get the confusion into the first to maybe take out modern economical fluid.” Let’s hope the Bank shifts gears pleasantly, or at least don’t lose their investors and not set a new lot of alarm.
Bright light at the end of the tunnel
Bank of England Pushes Rates to Unprecedented Heights
On May 11th, the Bank of England hit the brakes one more time, raising the base rate to a record 4.5 %. That’s the twelfth consecutive bump, and it’s already sparking talk that the hike cycle might be winding down soon.
What the Markets Are Saying
- “Meetings in June could still surprise the CPI table, but markets are already betting that the peak might sit at 5.5 %—a full 100 bps higher than today.”
- “Mortgage rates? Not exactly a happy tune.”
- “Even if the CPI takes a dip, there’re still seas of uncertainty between now and the next meeting.”
The Glimmer of an End
CMC Markets’ top analyst, Hewson, believes the current streak of rate surges might be coming to an end. According to him, “there is a very real possibility that we’re near the finish line of the rate‑hiking cycle, or at least incredibly close to it.”
Why This Matters
While a higher 4.5 % base rate means borrowing costs climb, the potential softening of the cycle could ease the squeeze on homeowners and businesses. Stay tuned—July might just bring a breath of fresh, less‑intense monetary policy.
Energy price cap’s trickle effect on inflation
UK’s Energy Support Schemes Call It Quits – Is Inflation Finally Catching Its Breath?
At the end of March, the British government pulled the plug on two major energy‑price safety nets: the energy price guarantee and the £400 per‑home support scheme. With these buffers gone, cheaper power stops “leaking” into the official inflation numbers, and the headline rate is finally starting to drop.
What the Numbers Actually Mean
- Energy Support Overlap: Overnight, households were no longer protected by the government’s price caps, so the extraordinary cost‑reductions that had been gently trickling down to consumers were suddenly absent from the CPI calculations.
- Inflation’s Realisation: Data experts, like economist Hewson, note that CPI figures had been understating the cooling in energy costs. “We’re seeing a leftover effect that was only delayed by the price cap,” he explains.
Ofgem’s New Cap – Still the Same Cup of Tea?
On Thursday, Ofgem announced it will set a new annual energy bill cap of £2,074 starting in July. That’s a jump from the previous £3,280 cap that applied from April to June.
But here’s the kicker: without the two government schemes, this £2,074 cap doesn’t actually give consumers much more breathing room. The upcoming winter bills are likely to hover at almost the same levels for most UK households.
Why the Caps Are Still a Big Deal
Even though the numbers look more hopeful, the underpinning reality is still a bit grim: people’s wallets won’t suddenly get a huge tax break. Instead, they’ll just see what’s already out there – a steady, moderate cost for heating and electricity.
What You Should Do
- Start monitoring your bill to catch any overcharges early.
- Consider switching suppliers if you spot a cheaper deal.
- Stick to a budget that accounts for a steady energy expense.
In short, the government’s exit from direct support is a step that gives the inflation gauge the chance to properly reflect living costs. It’s a subtle shift, but one that matters when you’re planning your household finances.
Stay sharp – your energy bill is still a big part of your monthly life, and knowing the numbers can help you keep your finances in check.
