UK inflation plummets as impact of lockdown takes effect

UK inflation plummets as impact of lockdown takes effect

The UK's consumer price index (CPI) 12-month inflation rate almost halved to 0.8% in April from 1.5% in March, representing the country's lowest reading since August 2016 and putting it on course to hitting 0% in the coming months, according to economists.

Britain's Office for National Statistics (ONS) figures released this morning show that CPIH, which also measures owner occupiers' housing costs, was 0.9%, down from 1.5% a month earlier, as the impact of lockdown affected the price of goods across the economy.

Laura Suter, a financial analyst at investment platform AJ Bell, commented: "Oil prices have dragged inflation lower again, as the price of the black stuff plummeted and petrol forecourts stood empty during lockdown. The drop in oil saw petrol prices fall to a four-year low, with petrol down 10.4p a litre. This, coupled with the fact the market for air fares and second-hand cars has ground to a halt, dragged down transport costs. The drop in oil also meant the cost of utility prices dropped to provide the lowest contribution to inflation in almost a decade.

Some experts are predicting the UK will enter a deflationary environment by the end of the year."

Richard Pearson, director at Investment Platform, EQi, warned that "Some experts are predicting the UK will enter a deflationary environment by the end of the year.

"A bounceback when restrictions on shops, pubs and restaurants are eventually lifted presents some much-needed hope for the economy, although it may take time for this to be felt. It won't all be doom and gloom, but the immediate outlook for savers remains unchanged. Staying committed to the long-term game continues to be in peoples' best interests at this point."

And Adrian Lowcock, head of personal investing at Willis Owen, an investment platform in the UK, said: "Inflation was widely expected to fall as collapsing oil prices, wage cuts (through the furlough scheme) and closing large parts of the economy are all disinflationary, and the sharp fall for April announced today confirms that is in full swing now.

"The number itself should be taken with a pinch of salt as many components of the inflationary statistic cannot be accurately measured because of the virus. What matters now to many investors is whether the disinflationary pressures will last. Some, such as the oil price, are already recovering. The measures implemented by the UK government and Bank of England (along with other major economies) are also likely to have some inflationary effect if demand returns.

"It is a tough balancing act for portfolios and it is not clear which conflicting force will win out over the next few years.

"The solution for investors then, is to prepare for both. Have some exposure to investments which will do well if we get disinflation, and some which will work if inflation returns with a vengeance."

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Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.