Latest UK inflation data from the Office For National Statistics shows that it fell this month by less than predicted, causing investment managers to analyse the impact on the macroeconomy, investors and potential interest rate hikes.

UK inflation data in March came in at 10.1 per cent, a small decline from February’s 10.4 per cent reading, caused mainly by higher food and drink prices.

The readings were worse than consensus expectations which had UK CPI poised to fall back to 9.8 per cent, the first sub 10 per cent reading since August last year. Core Inflation came in at 6.2 per cent, the same reading as last month showing UK inflation as increasingly stubborn.

Inflation eased slightly due to cheaper motor fuels. Food and non-alcoholic beverage inflation of 19.2 per cent was a key driver of the higher-than-expected inflation, with bread and cereals accounting for the largest upward contribution in this category.

Here are some reactions from investment managers to the latest data.

Nathaniel Casey, investment strategist at Evelyn Partners, a wealth management and professional services group
“Although inflation remains elevated it has realigned with its downward trends. Last week, the Bank of England’s chief economist Huw Pill noted that the path of inflation may be bumpier than expected in the short term but is likely to fall in the second quarter due to strong base effects in the energy sector. Additionally, inflation should decelerate at a faster rate through the second quarter as large rises in energy prices from last year's drop out of the annual comparison. Nonetheless, inflation still has a long way to go to return to the BoE’s mandated target of 2 per cent and wage growth rates are currently higher than would be consistent with this level. As a result, it’s likely that the BoE will continue to hike interest rates, with the futures market currently anticipating a terminal rate of 4.9 per cent in the third quarter.”

Tom Hopkins, portfolio manager at BRI Wealth Management
“Today’s figure shows that the cost-of-living crisis many Britons find themselves in might not be releasing its grip on families as quickly as first expected. The UK economy is not out the woods just yet.That said, if economic data continues to come in less negative than expected, it could help stir a revival in business and consumer confidence. Today’s disappointing inflation figure could raise expectations for another rate rise from the Bank of England on 11 May.”

Chris Beauchamp, chief market analyst at IG Group, the trading platform
“After yesterday’s wage data, the return to double-digit inflation will put further pressure on the BoE to keep pressing ahead, even though it looks increasingly reluctant to keep raising rates. Unlike in the US, where inflation appears to be firmly in retreat, UK price pressures remain stubbornly high, which leaves the BoE in an uncomfortable position.”

Jonathan Moyes, head of investment research, Wealth Club
"This was another month where inflation has remained stickier than expected. This may cause a real headache for the Bank of England, economic growth is weak, financial conditions are tightening, and yet inflation is clearly not under control.

A positive in the data was transport costs rising by just 1 per cent in the 12 months to March, reflecting lower energy costs due to warmer-than-expected weather. However, the good news stops there. Of the 13 sectors covered in the Inflation release, only transport inflation is below the Bank of England’s 2 per cent inflation target. Nine other sectors have inflation running above 5 per cent. Consumers may have to brace for yet more rate rises.”

Douglas Grant, group CEO at Manx Financial Group 
“Having narrowly avoided a recession, the UK economy could be showing signs of light at the end of the tunnel. However, the latest flatlining GDP data highlighted sluggishness that may be difficult to shake off. Indeed, coupled with the global banking sector showing signs of weakness, SMEs must take this as a reminder to review their existing lending structures and ensure that they are prepared for further challenges.

While many SMEs were proactive by locking their debt into fixed rate structures, it is too late for other businesses that were not as forward-thinking. Hence, the government must put in place a robust plan to help support SMEs, which are the backbone of the UK economy. According to our research, 22 per cent of UK SMEs that required external financing or capital in the past two years were unable to obtain it. Moreover, more than a quarter had to temporarily suspend a business area due to inadequate funding. It is concerning that SMEs continue to face difficulties in accessing finance, which is impeding their growth potential and depriving the UK economy of growth opportunities when it is most needed.”

Giles Coghlan, chief market analyst, consulting for HYCM 
“The question investors will be asking now is, where does the Bank of England go from here? The general consensus at the moment is that the central bank will need to hike by 25 bps in the May meeting, especially with the strong wage growth seen earlier in the week. 

"The issue for the pound and for the BoE is whether the latest data merits continued tightening. The surge in average earnings will no doubt be sounding alarm bells that the dreaded wage-price spiral could become entrenched in the UK, which has moved the dial in favour of another 25 bps hike when the monetary policy committee convenes next month. Some investors are fearing that the dreaded wage-price spiral could be about to bite and it will be hard for the BoE to not hike rates next month."

Andy Mielczarek, founder and CEO of SmartSave, a Chetwood Financial company 
“Although today’s CPI data shows that inflation is finally easing, the latest numbers show that savers still need to plan carefully. Elevated prices mean that, without careful financial management, people around the UK are still losing money in real terms.

Making the most of the right savings instruments is crucial. At the moment, rising interest rates mean that there are opportunities for those who are in a position to put aside a lump sum and allow that pot to grow. For those wanting to secure the most competitive rates, looking beyond traditional high street banks is often the key to making better returns, while fixed-term savings accounts can provide savers with lucrative options.”