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Rate Of Inflation Falls

This week the government released dome good news for the UK economy, as the impact of Brexit hits many hard. After all, many voted against leaving the EU because of the uncertainty. This uncertainty affects people’s livelihoods. The first announcement was that UK consumer price inflation fell in March to 2.5%. This is the the lowest rate in a year, according to the Office for National Statistics. The rate of inflation naturally guides a lot of the UK economy.

Sector Falls

As always, there is normally a specific sector that causes a fall. This was no different. Inflation fell from 2.7% in February due to prices for clothing and footwear (mainly for women) rising at a slower rate than expected. The rise was also slower than at this time last year. In addition, prices for alcohol and tobacco were steady, which also helped. The autumn budget ensures that tobacco duty rises won’t appear on figures just yet. Interestingly, the news may cause doubts to surface over whether the Bank of England will raise interest rates in May, as rumours suggested. One immediate result however was that the pound lowered against the US dollar.

Rate Of Inflation Falls – Other Factors

In other news, wages went up in the three months up to the end of February. This is according to the Consumer Prices Index (CPI), who state that the increase was by a healthy 2.8%. We must measure the rise against the aforementioned rate of inflation, after which it is much less significant. Add the change in housing costs and a truer figure is a 0.2% rise per annum, which is derisory. People will continue to proceed with caution until we see a regular improvement in figures.

Nevertheless, a positive figure is a welcome change, after a year of wages being squeezed. Inflation moved ahead of wage rises in February 2017, and has remained ahead until now. Additionally, unemployment in the latest three-month period fell by 16,000 to 1.42 million. The 4.2% unemployment rate is the lowest since the three months to May 1975. The number of people in work is listed as 32.3 million currently. Personally, whilst we should welcome such figures, they should also be met with caution. The government method of recording employment is not totally transparent.

Rate Of Inflation Falls – Bank Of England

The Bank of England has commented that it expects the fall in unemployment to start pushing up pay at a quicker rate, which is the main reason why it has said it is likely to raise interest rates quicker than it previously intended. the UK is a nation of shoppers. People shop though with confidence when they have greater disposable income. Figures show that a sustained improvement is required in wages before real optimism is merited.

The Future Of The UK Economy

It is obvious to say, but these are the factors that drive an economy, and the UK economy needs a boost. Wages and security in employment drives expenditure. The government has pursued a policy of encouraging personal expenditure via increasing debt in recent years, which carries many risks for the future. Household consumption accounts for approximately 60% of the total value of the UK economy. If spending levels drop, then the economy slows down. Jobs are lost, tax income is reduced, and the spiral continues. And the more it continues, the harder it is to pull out of it. Rate of inflation is higher than previous years, and it will be interesting to note if it returns back to past levels.

Conclusion

Thus, the recent economic announcements should be welcomed, but it is a first step only, and the UK economy has a long way to go before it can celebrate being back on a firm footing. After all, for millions there has been no recognisable rise in wages or wealth in over a decade. And the figures that show these are the worst for over a century.

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