Vicky Pryce, Chief Economic Adviser at the Centre for Economic and Business Research spoke to CGTN Europe about why this has happened and whether it will fall further.
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00:00 Well, the real reason why inflation has come down is because energy prices have come down
00:05 and food prices have come down. Internationally, food prices have been falling for the last
00:09 year and a half, month after month, more or less. And of course, energy costs are considerably
00:13 less than where they were a year ago.
00:17 Inflation down. Of course, interest rates tend to, at the level they're at now, tend
00:22 to slow down demand and affect consumer confidence. But for the moment, most of the decline in
00:29 inflation we've seen has come really because of those international factors.
00:32 So everyone looking for this interest rate cut, of course. What do you think these inflation
00:38 figures mean for the timing of that?
00:41 Well, there's going to be a meeting tomorrow of the Monetary Policy Committee of the Bank
00:45 of England, and they're going to look at the data. And our expectation generally is that
00:50 they're not going to do anything very much at all. Interest rates will stay at the 5.25
00:53 percent where they are. And that would be mainly because, well, it all depends what
00:58 happens in the US, of course. They will be waiting for the Fed to cut rates first. We've
01:02 seen the European Central Bank not cutting rates when they met a little while ago. So
01:07 I think there is going to be a coordinated cut, we're all suspecting, in interest rates,
01:13 but we're not quite at that point yet. I think what the Bank of England would be particularly
01:16 looking at is what's happening to services inflation, which is still just over 6 percent
01:22 year on year. So although the overall inflation figures, the headline inflation figures, have
01:27 fallen quite significantly, I think there are some concerning issues for them at any
01:31 rate, which will probably keep rates where they are for the time being.
01:35 This all has political implications, of course. What do you think this lower inflation and
01:39 perhaps at some point a cut in interest rates might mean for the timing of the UK election?
01:47 It will take a little bit of time for those changes to be reflected in people's willingness
01:51 to go out and spend a little bit more. Consumer confidence has gone up and down a little bit
01:55 over the last few months. So it was on its way up and then it sort of stabilised a little
02:00 bit. So I think people are waiting to see what the overall impact of what's going on
02:03 is going to be. First of all, of course, inflation being lower means that real wages are now
02:08 increasing. So that's good news for them. There have been some tax cuts that have taken
02:13 place. Some of them are becoming effective, of course, at the beginning of April. So they're
02:17 going to see a little bit more of that. Minimum wage is going up. So people are going to feel
02:21 a little bit wealthier, particularly if interest rates start coming down, mortgage rates are
02:27 coming down. Now, the question is, is all this going to be sufficient to make a difference
02:31 in terms of what the result of an election might be? And the expectation is that perhaps
02:37 not very much. And that is why we're now beginning to hear that the election is probably going
02:42 to be in the autumn and there may well be another fiscal event before that. In other
02:48 words, giving a little bit more help to both firms and individuals just before the election
02:53 is called. So we'll see what the difference, whether it makes a difference in fact to the
02:57 final outcome. You say it might take a while for people to start feeling this. What do
03:02 these numbers mean for the average person? Because, of course, there are still some inflationary
03:06 rises coming down the track. Mobile phone prices, water rates, for example. You're absolutely
03:12 right. And what's happening is, of course, that service inflation still remains quite
03:16 high. But the energy costs are very substantial part of what the average household has been
03:24 suffering from over the last year or so. And the lower you are down the income scale, what
03:30 really matters is food and energy. And those at least are moving in the right direction.
03:34 And we are likely to see in April a further decline in energy costs that people have to
03:41 pay because, of course, there is a price cap and that price cap is coming down by over
03:46 12 percent. So that's going to make quite a big difference. So people are going to feel
03:50 that they're keeping a bit more of their wage increases. So I think that's going to be quite
03:55 positive in terms of what may happen to growth in the economy. And the overall forecasts
03:59 are that there will be growth, perhaps under 1 percent, but at least it will be better
04:03 than just the point one percent we achieved in 2023. So do you think then that given these
04:08 figures, this will perhaps make it more likely that an election will be later rather than
04:13 sooner? If there is suddenly a change in people's views and the opinion polls that come out
04:21 say now inflation has come down so significantly, we feel considerably happier with the government
04:26 as is and the policies have really worked, then they might be tempted to have an early
04:29 election. But I'm suspecting what they really want to see is growth really picking up. And
04:35 for the moment, while interest rates are still high, that's not really happening. If you
04:39 look, yes, services are doing OK, but manufacturing isn't. It's been falling for more than a year
04:46 now, month after month. So that's a bit of an issue. And people are not necessarily still
04:52 feeling that there is enough certainty around them. So it might take a little bit of time.
04:56 So the faster interest rates come down, actually, the easier it would be, I think, for the government
05:00 to claim that growth can return. Vicky, great to talk to you. Thank you so much for joining