UK inflation more than doubled in April, pushed up by high oil prices and household energy bills.
CPI inflation rose from 0.7 per cent to 1.5 per cent, reflecting the Bank of England’s view that inflation might overshoot the 2 per cent benchmark this year.
On May 6, the BoE said it expects inflation could reach 2.5 per cent towards the end of this year, but that there wouldn’t be any long-term impact and inflation would drop back to 2 per cent in the medium term.
Laith Khalaf, financial analyst at AJ Bell, said: “At current levels, inflation is nothing to fret about, but there is rising concern that the fiscal and monetary response to the pandemic has sown the seeds of an inflationary scare further down the road.
“For the moment, the Bank of England is dismissing consumer price increases as a natural bounce back from the depths of the pandemic last spring. But the economic recovery could be a Trojan horse, smuggling inflation into the UK, right under the nose of central bankers."
He added: “If realised, a sustained inflationary period would be a paradigm shift from the last twenty-five years of extremely benign price rises, which have provided comforting mood music for stocks and bonds.
“Investors don’t need to hit the panic button just yet, but they do need to factor the potential for higher rates of inflation into their plans. Where inflation is concerned, it’s better safe than sorry.”
Jon Hudson, fund manager of Premier Miton UK Growth Fund, added: “Inflation is likely to continue rising throughout the year as lockdowns ease, the economy recovers and various commodity shortages feed through to rising prices. The recent strength of sterling will act as a buffer for inflation as it reduces the cost of imports.”
Sonja Laud, chief investment officer at LGIM, said the rise in inflation happened much sooner and stronger than originally anticipated.
“We do expect that inflation will remain elevated throughout the remainder of this year.
“We have anecdotal evidence of clear bottlenecks in some sectors. But for the overall inflationary picture, it is so important to understand whether this [increase in demand] is more consistent and more widespread than what we're currently seeing.
“As such, all eyes will be on the Federal Reserve.”
sally.hickey@ft.com
