Inflation falls to 2.3% – business industry reaction

Latest ONS data has found that inflation came in at 2.3% in April, lower than the 3.2% reported in March.

The rate is at its lowest in two and a half years, and down from the peak at 11.1% in October last year.

Commenting on the inflation data for April, ONS Chief Economist Grant Fitzner said “There was another large fall in annual inflation led by lower electricity and gas prices, due to the reduction in the Ofgem energy price cap.

“Tobacco prices also helped pull down the rate, with no duty changes announced in the budget. Meanwhile food price inflation saw further falls over the year. These falls were partially offset by a small uptick in petrol prices.

“The prices of goods leaving factories have risen a little over the last year. Meanwhile, the prices of raw materials and fuels grew in the last month, though they remain below where they were a year ago.”

Tina McKenzie, Policy Chair, Federation of Small Businesses (FSB) said “Getting back within touching distance of the Bank of England’s 2% target has been a difficult road for many small businesses, who will overwhelmingly feel relief that inflation has fallen precipitously in recent months. However, they’re still feeling battered and bruised by the impact that spiralling prices have had on them since inflation hit a peak in October 2022, and are still having to adjust to prices that are significantly higher than they were a couple of years ago.

“A cut in interest rates is starting to feel overdue, and all eyes will now turn to the next base rate decision in June. Yesterday, the IMF recommended that the Bank of England should cut the base rate by up to three times this year, and that the base rate should be taken to around 3.5% by the end of 2025, from its current level of 5.25%.

“Core inflation’s decline has not been as rapid, however, and it rose by 3.9% in the year to April 2024, down from 4.2% in March. This may make the Bank of England less inclined to cut the base rate at the next meeting, which would be a missed opportunity.

“Small firms’ confidence levels started to rise over the first quarter of this year, according to our research, and we want to see this valuable momentum keep and even pick up pace, rather than stalling or slipping back again.

“The economic growth we all want to see will be powered to a great degree by small firms, so it is vital to get their growth ambitions back on track, not held back by cost pressures and high interest rates. The needs of small businesses should be top-of-mind for policymakers and politicians, as it is their trajectory which will shape the future direction of the economy.”

Michael McGowan, Managing Director, Foreign Exchange, Bibby Financial Services said“Today’s announcement that UK inflation has fallen to 2.3% is welcome news for UK businesses, as optimism steadily builds at the prospect of a sounder economic environment.

“Small and medium sized enterprises (SMEs) have particularly struggled over the past two years, with our polling of 1000 SMEs recently revealing inflation to be the number one challenge they face. High business costs have been keenly felt, and no small degree of resilience has been required of small businesses to weather the storm, to now. 

“Looking forwards the Bank of England’s 2% target is in touching distance. That could mean cuts to interest rates, with the IMF suggesting up to three cuts possible this year– leading to better conditions for SMEs to borrow, invest and grow. Yet, at the same time, shifting circumstances in the domestic economy can mean uncertainty for those trading abroad. SMEs should absolutely feel buoyed by the UK’s improving economic outlook, but those with international interests should also shore up their FX strategies to best capitalise on the opportunities to come.”