Interactive Investor

UK inflation falls to 3.4%

This is the type of fall in inflation needed for Britons to feel good about where the cost of living is headed, says Myron Jobson.

20th March 2024 08:07

Myron Jobson from interactive investor

Commenting, Myron Jobson, Senior Personal Finance Analyst at interactive investor, says, “This is the type of fall in inflation needed for Britons to feel good about where the cost of living is headed. 

“The fall in food inflation, especially on staples like bread and cereals, to the lowest level since January 2022, is a big deal for households. Most Britons have felt inflation’s pinch the most through the amount they spend on food - which has disproportionately hit lower earners because they spend a greater portion of their income on food.

“After stripping out volatile food and fuel costs for a better sense of the underlying trend, core inflation came in at 4.5%, down from 5.1%. This reading matters because Bank of England policymakers monitor it to get a sense of inflation’s momentum.

“The latest fall in inflation, along with recent GDP data which shows that the UK has taken its first steps out of the shallow recession it fell into in the second half of last year, could have Bank of England officials debating over how soon is too soon when it comes to cutting interest rates.

“High interest rates have made it more expensive for people to buy a house and expand a business, which can weigh on an economy over time. Bank of England policymakers have a delicate balancing act to strike of bringing inflation under control without crushing economic growth and curtailing widespread job losses and a deep recession.

“Great progress has been made in the battle against inflation, but it is not yet won. While the light at the end of the long and winding tunnel is shining ever brighter, inflation remains above the Bank of England's 2% target. As such, Bank of England policymakers want to avoid cutting the base rate too soon, only to find out that inflation is not fully quashed.

“Inflation is still expected to continue to moderate in the coming months. But it is important to remember that we each have a personal inflation number that could be far higher than the catch-all headline figure. As such, while headline inflation is cooling, it remains important to keep a keen eye on your finances and make adjustments if needed to maintain financial resilience.

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