Inflation figures welcomed but pressures remain

Christian Spence, Research Manager at Greater Manchester Chamber of Commerce

Christian Spence, Research Manager at Greater Manchester Chamber of Commerce, said: “The inflation statistics contain some welcome news for households and businesses, though pressures remain and will continue to have a constraining effect on consumption. Falling to 2.4% from 2.8%, April’s CPI figure is the first fall in this index since last Autumn. Fuel, air fares and insurance have contributed to the weakening of inflation this month, and businesses will be pleased to see some respite on these key costs, particularly after last month’s 2.6% rise in their business rates.

"Price pressures for UK manufacturers also weakened this month, with total input prices falling marginally on the year. The easing of crude oil prices has helped this fall, though notably domestic fuel prices including the Climate Change Levy has risen slightly, highlighting how government policy and regulated prices can feed pressures within UK businesses.

“The weaker domestic food harvests last year continue to drive food inflation for UK products, but internationally the markets are seeing less stress on prices, suggesting that pressure on food inflation over the coming year will weaken. Whilst this is good news for our food industry and also for households, the continued slow rate of growth of pay in the UK will continue to see UK household spending constrained.

"Last week’s labour market data showed pay rising at only 0.4%, indicating continued real terms reduction in consumers’ spending ability. Coupled with a high savings ratio and a wider desire to pay down debt, the economy is still likely to see weak growth over the coming months.

"Sectors dependent upon household spending patterns, particularly retail, will continue to see weak demand but the falling producer prices, coupled with the increase in the Annual Investment Allowance may allow businesses to begin to increase their capital expenditure over the coming months.

“Mervyn King’s recent statement from the Bank of England highlighted the increased likelihood of the economy growing.

"The Chamber of Commerce’s recent Quarterly Economic Survey highlighted a strong service sector in Greater Manchester which, driven by a number of key sectors, will continue to provide growing employment.

"The manufacturing sector was weaker but the welcome easing of price pressures is likely to improve that environment.

"The government, however, must not assume that the Bank of England’s report means that they no longer need to pursue every opportunity for growth, particularly in the regions. The economy is still overbalanced to London and the South East and our regions must not be deprived of much needed investment.”