After figures from the Office for National Statistics (ONS) showed that inflation fell by less than expected last month, investment managers react.

The UK consumer prices index inflation for March was reported at an annual 3.2 per cent on Wednesday – slightly above the consensus expectation for 3.1 per cent – dashing hopes of an interest rate cut any time soon. Nevertheless, the figures are still a retreat from February’s reading of 3.4 per cent.

In monthly terms, CPI was up 0.6 per cent (consensus: 0.4 per cent), compared with 0.6 per cent in February.

Annual core inflation, which excludes food, energy, alcohol, and tobacco prices, was 4.2 per cent, against a consensus of 4.1 per cent, below the February reading of 4.5 per cent.

Here are some reactions from wealth managers to the latest figures.

Isabel Albarran, investment officer at Close Brothers Asset Management  
“While we did see a decline in UK inflation through March, to 3.2 per cent from 3.4 per cent, this was less of a deceleration than expected by the street and indeed the Bank of England. Hospitality and recreation were both strong, and the early timing of Easter cannot wholly explain the strength in clothing, household items, accommodation, and food prices.

“For the Bank of England (BoE), this adds a new dimension to policy decision-making. We still expect CPI to fall sharply in the second quarter, helped by the 12 per cent fall in the April Ofgem price cap and, while CPI is expected to revive modestly thereafter, it is still expected to remain close to the 2 per cent target until the end of the year. That said, this greater resilience in CPI may cause the Bank of England to hold off on rate cuts longer than expected, even if the May Monetary Policy Report forecasts suggests they are appropriate.”

Nicholas Hyett, investment manager at Wealth Club
"UK inflation is firmly in the slow puncture phase, and has been since the last quarter of 2023. Big falls are now a thing of the past, and unless there are some major external shocks – such as a spike in global energy and food prices – it seems likely to stay that way. Put that together with an economy which is showing some signs of weakness, the evidence to support an interest rate cut is growing. It's worth noting though that we seem to be shifting to a two-speed global economy. The US continues to grow strongly while Europe and others are struggling. Given the disruption adopting a different interest rate policy from the US could cause to exchange rates, that creates additional uncertainty. One to watch."

Rob Clarry, investment strategist at UK wealth manager Evelyn Partners
“The services component of CPI inflation remains elevated at an annual 6 per cent, which was above the 5.8 per cent expected – and the Bank of England will want to see more progress on this measure before they commit to a rate-cutting cycle. Despite softer domestic conditions, the Bank’s monetary policy committee will be wary about cutting in the face of higher US interest rates. As a smaller but open economy, the UK is exposed to broader global economic forces, and this has been on display in recent weeks as US bonds yields have risen amidst sticky inflation, which has placed upward pressure on UK government bond yields.

“Cutting interest rates in this environment would likely lead to sterling deprecation, which would, in turn, lead to higher import prices and put upward pressure on UK inflation. As we enter the summer months, the Bank will continue to face a difficult balancing act between growth on one side and inflation on the other.

“On the growth side, the data are showing signs that activity has improved in recent months, but from a low base. This implies that the technical recession experienced in the second half of 2023 is now over. However, growth is likely to remain sluggish through the remainder of this year, particularly given labour market weakness. 

“The recent run of data has changed the calculus for money market traders: the probability of a June rate cut has fallen from 70 per cent last month to around 20 per cent. Post this CPI report, sterling gained vs the US dollar and gilt yields increased across the curve. We continue to expect the first rate cut around the middle of the year, although rising US bonds yields are challenging this view.”

Kirsty Watson, chief operating officer at abrdn adviser
“Inflation continues to slow towards the 2 per cent target. But a smooth path towards that isn’t guaranteed. As we saw in the US inflation data last week, there may still be unexpected jumps amid what remain volatile economic conditions. That being said, the 2 per cent target is still widely expected to be reached this year. And this will be an important moment for the advice sector. That’s because while a positive, there is a real risk that some people either assume that inflation is now something they don’t need to worry about anymore, or that conditions will – or should – go back to how they were before.

“Neither of these will be the case, given that we are all still living with higher prices than we were in the not-too-distant past. Many people will naturally have switched to a short-term, reactive thinking as the cost-of-living crisis hit. Advisors now have a real opportunity to help them back to taking a long-term view that reflects the realities of our new normal. We can’t let savers be lulled into inaction. If this happens, more and more could end up falling short of their plans or find themselves caught out by unexpected future shocks – undoing all the progress that’s been made to date in helping more people unlock good outcomes through better, futureproofed financial plans.”