Inflation falls to 8.7% – business industry reaction

New data from the Office for National Statistics (ONS) shows that inflation fell to 8.7% in April, down from 10.1% in March.  The figure is higher than economist forecasts of 8.2 per cent and above the 8.4 per cent projection from the Bank of England.

Annual food and drink price inflation, which rose to its highest rate since 1977 in March, dropped only marginally in April to 19.1 per cent, down from 19.2 per cent

Commenting on the inflation figures for April, ONS Chief Economist Grant Fitzner said “The rate of inflation fell notably as the large energy price rises seen last year were not repeated this April, but was offset partially by increases in the cost of second-hand cars and cigarettes.”

“However, prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs.”

TUC General Secretary, Paul Nowak said “Prices are still rising much faster than wages. And families cannot restore their lost living standards without stronger wage growth. But Rishi Sunak does not have a plan to get wages rising. And he wants to sack workers who use their right to strike to get a fair pay deal.”

“We all want inflation to fall faster. But working families are also suffering from this government’s failure to get wages growing. This needs to change too.”

Kitty Ussher, Chief Economist at the Institute of Directors, said “The fall in the headline rate will reassure business leaders who are hoping that we may now be through the worst of the inflationary peak. However, today’s data will still be a worry to policymakers.”

“The fall in the headline rate was not as great as most analysts expected. In fact, monthly inflation has risen, from 0.8% in March to 1.2% in April and ‘core’ inflation that excludes volatile items is also up, from 6.2% to 6.8% in the last month. Food price inflation continues to run extraordinarily high, at 19% annually.”

“Policymakers will hope that now that the headline rate is back to single digits, expectations of future inflation will now start to fall as well, which then could become self-fulfilling.”

Tina McKenzie, Policy Chair, Federation of Small Businesses (FSB) said “The fall in inflation is helpful, but now small firms will be hoping for further steep drops in coming months.”

“For many small firms, the pressure on margins from all directions has felt unrelenting, so today’s figures bring a bit of much-needed relief. We are still a long way off the Bank of England’s 2% target, however.”

“Energy prices have stabilised, contributing to the fall in the overall rate. There are, however, tens of thousands of small firms trapped on much higher tariffs fixed in summer last year, and we are calling on energy companies to allow any small business in this position to be allowed to ‘blend and extend’ their contract, to benefit from lower wholesale prices.”

“The food inflation rate has barely budged, which is bad news for hospitality and food retail businesses, and may hamper future improvements in consumer confidence as households have less left in their budgets once essential costs have been accounted for.”

“Our Small Business Index indicates that the general improvement seen in Q1 in overall confidence levels isn’t equally distributed across sectors, with retail, hospitality, and manufacturing firms lower than the average for all sectors.”

“Small firms’ resilience and canniness are more vital than ever in the face of inflation’s unexpected persistence, and small firms will be looking to other signs of economic recovery to provide hope, from a marked uplift in consumer confidence in recent months to a significant decrease in the odds that a recession is on the cards.”

“Ongoing inflation makes the argument for prompt payment even more crucial, as the value of delayed invoices erodes for every day they are left unpaid. Large corporates must take responsibility for their treatment of their suppliers, and commit to speedy and transparent payment practices.”

Tommaso Aquilante, Associate Director of Economic Research at Dun & Bradstreet “April’s inflation numbers are a mixed bag. While coming later than expected and somewhat smaller than anticipated, the drop in headline inflation is certainly good news for the UK economy. As it is good news that producer input and output inflation, a proxy for pipeline inflationary pressures, eased significantly. And food inflation too seems to be losing pace.”

“But the headline figure masks some worrying dynamics: the acceleration of core inflation from 6.2% to 6.8% shows how stubborn prices can be and should preoccupy businesses. The Bank of England will certainly be worried about this trend ahead of the June meeting.”

“For businesses themselves they are going to continue to feel the bite of elevated prices and the lagged effects of tighter monetary policy, which could lead many to act cautiously (as data shows that a quarter of business leaders cite weakening consumer demand as the most significant threat to their business).”

David Bharier, Head of Research at the BCC, said “Today’s CPI rate of 8.7% indicates that after several false starts, the peak in inflation looks to have passed. This is further evidenced by a significant slowdown in the producer price input rate to 3.9%. Falls in gas and electricity costs provided the largest downward contribution to CPI.”

“But this does not mean the problems caused by inflation will suddenly go away. Prices continue to rise from an already high base, after 18 months of price shocks.”

“The last year and a half has had a devastating impact on many small firms who were just starting to see activity bounce back following the removal of Covid restrictions.”

“With the interest rate currently at 4.5%, widespread skills shortages, and trade frictions on the rise, the cost of doing business is the highest in years. Action by the Government to help with the squeeze on the labour supply, reform of business rates and support on exports would go some way to helping them face the future with more confidence.”