Persistent price rises dragging down UK consumer spending
INFLATION has stopped falling, remaining at an uncomfortably high level in April, a business index published today showed.
Consumers are still being hit hard by soaring prices and stagnant wages, which undermines spending and so hits economic growth, according to the output and optimism indices published by BDO.
The group’s inflation index dropped just 0.1 points in April to 102.9, well above the trend level of 100, which represents average annual price rises of 2.7 per cent.
That indicates inflation is unlikely to fall to the Bank of England’s two per cent target by the end of the year while earnings continue to grow at just 1.6 per cent per year.
As a result consumers will remain squeezed for much longer than officials estimated just a few months ago.
“Given the public sector austerity measures required to reduce deficits, policy makers across the globe have reached for unconventional monetary policy tools to encourage growth,” said BDO partner Peter Hemington.
“However, the UK has shown stubbornly high inflation and our findings suggest that business people predict inflation will continue above target – potentially a self fulfilling prophecy.”
Business confidence has been hit hard by the ongoing loss of consumption, BDO claimed in its research.
Its optimism index, which forecasts business performance two quarters ahead, fell from 96.7 in March to 96.2 in April, firmly below its trend level of 100.
The output index, which points to business conditions in one month’s time, rose 0.1 points to 95.8, just into positive territory but also well below the 100 trend level mark.