Prices rose less quickly than expected last month. The annual rate of Consumer Price Index (CPI) inflation stood at 4% in March, down from 4.4% the previous month. A fall in the cost of food and non-alcoholic drinks accounted for over half the decline. Core inflation, which strips out food and energy, also retreated from 3.4% to 3.2%. Overall, high-street sales fell by 1.9% year-on-year in March, according to the British Retail Consortium – the worst slide in the survey’s 16-year history. On a like-for-like basis sales slid by 3.5%. The trade deficit narrowed and exported goods volumes reached their highest level since 2006.
What the commentators said
What’s happening here is that “consumers are taking a fearful battering” from rising taxes, lower public spending and pay rises running far below inflation, said Larry Elliott in The Guardian. While retailers would “dearly love” to keep passing their rising costs on, “consumers have gone on a buying strike”. Retailers have “reluctantly started to accept that prices…will have to be cut to keep business volumes up”.
But this doesn’t mean inflation has embarked on a downward trajectory. Instead, it’s “a blip in a pretty horrible trend”, as Peter Hoskin put it on Spectator.co.uk. CPI is still double the Bank of England’s official 2% target and is set to start rising towards 5% in the summer, thanks to higher recent oil and energy costs. So interest rates at 0.5%, where they have been for more than two years, will look “unsustainable”, said The Daily Telegraph. Although the interest-rate rise many expected for May is now not likely, the respite for ailing consumers will be brief. The “inevitable” increase will take place in the summer.
With the outlook for consumption discouraging, the recovery “looks highly fragile”, said Elliot. Fiscal tightening will average 1.5% of GDP in each of the next four years. Austerity “only began in earnest this month”. Still, for now at least, the private sector is “managing to offset public-sector job cuts”, said Capital Economics. In the three months to February, 143,000 jobs were created. This marked the biggest increase in full-time employment since May 2007.
The trade figures were also encouraging, said The Guardian’s Julia Finch. There are signs that our exporters are becoming less reliant on slow-growing Europe. Exports to China were up an annual 24% in the three months to February. “The rebalancing of trade – as well as the rebalancing of the economy – has a long way to go. But it’s a start.”