Money blog: Interest rate cut blow as inflation drops less than expected (2024)

An election has been called, and the main parties now have six weeks to make their pitch to voters.

Central to their manifestos will be what they will do with your money - their plans for taxes, pensions, childcare and so on.

So what have the Conservatives and Labour said so far on money matters, what has been reported in the media and what could change with a new government?

Triple lock and pension age

This is a key issue for many voters, particularly older ones - traditionally more likely to vote Tory.

Tom Selby, director of public policy at AJ Bell, says the pension triple-lock is one of the few things both parties have been "crystal clear on".

Both Rishi Sunak and Sir Keir Starmer have committed to the policy for the next five years. Reminder - the lock guarantees the state pension rises by the highest of average earnings growth, inflation or 2.5%.

Another key issue is retirement age: Mr Selby says that although neither party is likely to talk about it on the campaign trail, there's a chance pension age increases will come into focus for the next government.

"The current state pension age is 66, with plans in place to raise this to 67 by 2028 and 68 by 2046," he says. "However, there have been calls from various quarters to accelerate that timetable in order to save the Treasury money."

Lifetime allowance

According to reports, Labour would consider plans to reintroduce the lifetime allowance - the limit on pension pots someone can build up over their lifetime without a tax penalty. It was abolished in April this year.

We'll see if this is actually something they commit to in the coming weeks, however.

Lost pensions

Tackling the issue of "lost" pension posts will probably be a "big focus" for the next government, Mr Selby says.

An estimated £27bn of pensions money is sitting in accounts that have become disconnected from their owner.

"Proposed pensions dashboards should help make it easier for Brits to find lost pensions. The reforms, due to be introduced in 2026, will allow people to see all of their retirement pots in one place, online," he says.

ISAs

At the last budget in March, Jeremy Hunt announced the creation of a British ISA - which would allow savers to invest £5,000 a year tax-free in the UK stock market.

It has since been delayed pending a consultation.

Labour has said it will look to simplify ISAs, something Mr Selby welcomes: "No sensible person designing a savings system from scratch would propose the plethora of different ISAs we have on offer today."

Tax

Tax is a key battleground in any election.

It's a divisive issue, as Laura Suter, personal finance director at AJ Bell, concedes: "For some, taxes need to rise in order to fund already-stretched public services. For others, ever-increasing tax bills are evidence that public spending is out of control and taxes need to be cut to incentivise growth."

The Tories are likely to tout cuts to National Insurance as proof of their commitment to cut taxes, she says - we have already seen two 2p cuts in the last year.

Labour will argue, though, that their rivals have increased taxes by stealth by freezing tax thresholds - and can point to record high tax burdens facing Britons.

"In truth," Ms Suter says, "there is very little wiggle room in either direction. Taxpayers will struggle to stomach further tax increases, while tax cuts will eat into the future chancellor's budgets, which is crucial to any spending commitments either party plan on."

Housing and first-time buyers

This is another big concern for voters, with the potential to divide young and old.

"First-time buyers will want to see an extension to support helping them get a foot on the ladder," Ms Suter says, "while existing homeowners will hope for policies that moderate inflation and increase the likelihood of interest rate cuts."

She highlights an issue for aspiring homeowners with the Lifetime ISA.

The property limit, she says, is "frozen in time" at £450,000 since the ISAs were launched seven years ago. Since then, average house prices in the UK have gone up from £219,000 to £283,000. If the limit had increased with house prices it would be £580,500 today, she says.

"Many aspiring homebuyers will have signed up to the accounts years ago, not realising that it would take so long to get on the property ladder and that they might fall foul of the property limit in the future," she says.

"What makes the situation more galling for first-time buyers who have been priced out of using the Lifetime ISA is that they now face losing some of their own money when they withdraw their cash from the accounts, thanks to the onerous withdrawal penalty. Anyone who exceeds the £450,000 limit, even by just £1, will be hit with the 25% exit charge on the Lifetime ISA, as their purchase will no longer be within the rules."

Childcare

The Tories announced an expansion of free childcare to all children under five in England last year. Since then, Labour has said it will back the policy if it wins the election.

Ms Suter calls the policy a "helpful boost" to parents' finances, saving them almost £3,500 a year on nursery fees depending on location, but cautions: "It's essential that the next government keeps a close eye on the rollout and ensures that any wrinkles in the system are ironed out quickly."

There's a case for going further, she says, and reforming the entire system, "which provides a hotchpotch of different subsidies for parents that frustrates families, leaves nursery finance departments scratching their heads, and creates an extra admin burden for the tax office.

"It's possible a future government could go back to the drawing board with a complete rethink on the way parents are supported with childcare and the cost of starting a family."

"The economy, stupid."

The phrase was coined by James Carville, a strategist of Bill Clinton in 1992, as a US recession helped unseat George W Bush.

The phrase emphasises the link between the fortunes of a country's economy and election results, and seems apposite today as Rishi Sunak called a 4 July poll after inflation returned to 2.3% - or "normal levels", as he called it.

Ed Conway, our economics editor, has been on air giving his thoughts about whether focusing on the economy is a good strategy for the PM...

He said: "The economy was driven through that speech from the prime minister.

"We're out of recession. That's one of the key things they were waiting for. Inflation is now down to a normal level.

"Those things have been ticked off [but] there's a couple of issues.

"First of all, it doesn't look like, with inflation not falling quite as far as everyone would have expected, that the final thing they were hoping for, the Bank of England cutting interest rates, is going to happen in June. There probably is not going to be an interest rate cut before the election. That's quite significant.

"Secondly, when people look at this election, it's that old question: do you feel better off than you did four or five years ago?

"And in this case, there is no parliamentary period in history where people have seen their real disposable incomes squeezed as much as this one.

"That's what the prime minister's fighting against. He will say that was down to the pandemic. It was down to what's happening in Ukraine at the moment.

"But for a lot of people, they are still finding it quite painful, even though inflation is back to normal levels. That's the legacy of the last few years that people are feeling in their pockets."

Nearly a third of shoppers believe the quality of food and drink in supermarkets has decreased in the last two years, according to a survey.

Some 33% of those questioned by Which? said they had noticed a change in quality, with 94% of this group saying it had got worse.

The survey found most complaints were about fruit and vegetables, although shoppers also reported a decline in quality in supermarket own-brand food, chilled and frozen ready meals, branded food, and fresh meat and fish.

The consumer site said one of the factors could be that customers have higher expectations due to prices increasing sharply.

But other factors could also include a series of poor harvests for fruit and vegetables due to adverse weather conditions and climate change.

Plus, many supermarkets have removed best-before dates from most fruit and vegetables in a move to reduce food waste.

This could mean some fresh items might be sitting on supermarket shelves for longer, or items could be spoiling sooner once they're bought than they had previously.

More survey respondents reported declines in food quality at Tesco (43%) and Sainsbury's (42%).

This was followed by Morrisons (17%), Aldi (16%), Asda (16%), Waitrose (14%), Lidl (11%) and M&S (10%).

However, Which? said this order broadly reflects retailer market share so could just be down to where people shop most frequently.

The Money team has contacted the supermarkets for comment.

Research by Compare the Market suggests 69% of home movers are surprised by some of the costs involved.

The comparison site calculated what it describes as "hidden costs" - and came out with an average sum of £5,837.

People moving home reported legal fees being larger than expected, as well as the surprisingly high cost of hiring a removal van or paying for short-term storage, according to Compare the Market.

Others said they were surprised by the high cost of mortgage arrangement fees and their homebuyer survey.

Here's the data...

Every Wednesday we get Michelin chefs to pick their favourite Cheap Eats where they live and when they cook at home.This week we speak toStephen Toman, chef owner at the one Michelin starred Ox restaurant in Belfast.

Hi Stephen, can you tell us your favourite places in Northern Irelandwhere you can get a meal for two for less than £40?

Rarely do I get out with being in the restaurant so much but when I get a chance I like to go somewhere casual.

There's a great little pub not too far from me that does great pub grub and an even better Guinness. It's called Robert Stewart's, or Bob Stewart's to the locals. I recommend the peppered steak and a pint of the black stuff to wash it down.

For in the city centre I recommend Ora. The perfect spot for small plates and wines by the glass. Super co*cktails also. The bang bang chicken or the pork fritters never fail.

What's your go-to cheap meal at home?

Cooking at home, I try to keep it simple. I enjoy making Mexican with my daughter, she is crazy about fish tacos. We normally just serve it with guacamole, salsa, spiced rice and coriander mayo.

Other than that it has to be a Sunday roast, even on a Tuesday.My favourite is a good quality ham, glazed with maple, orange and clove, served with fondant potatoes and spring greens. Use a little bit of the ham stock to deglaze the roasting tray, and thicken with a few knobs of butter for the sauce.

We've spoken to top chefs around the UK - check out their Cheap Eats here...

Inflation came in at 2.3% in April - but this is a round up of various sectors, some of which saw prices rise or fall at vastly different rates.

A cut to Ofgem's energy price cap and the associated cheaper bills were a leading driver of April's inflation rate fall.

Prices of electricity, gas and other fuels fell by 27.1% in the year to April 2024, the largest fall on record, according to the Office for National Statistics.

While they didn't fall, food and drink price rises slowed for the 13th month in a row to 2.9% in April, from 4% in March. This is the lowest level since November 2021.

However, services inflation, a critical indicator for Bank of England policymakers, dipped slightly from 6% in March to 5.9% in April, coming in ahead of the 5.4% rate that some economists had been predicting.

This was driven by more volatile aspects of the sector, such as hotels and live music.

As we've been discussing, today's inflation data could set back interest rate cuts - with the Bank of England having stated it needs evidence inflation can hit and stay at the 2% target before it acts.

Headline inflation is now within touching distance of the target - but 2.3% wasn't as low as expected and core inflation, which strips out the volatile elements, is still at 3.9%.

Paul Dales, chief UK economist at Capital Economics, said the smaller-than-expected fall in inflation makes a June rate cut "unlikely" and "casts some doubt over August too".

Capital Economics had forecasted that rates would fall from 5.25% now to 3% next year, but Mr Dales says this now looks "more challenging".

He said today's data would have been a "blow" for the Bank of England and Rishi Sunak, despite inflation being closer to the 2% target than it has been for three years.

He pointed out that restaurant and hotel inflation rose from 5.8% to 6%, while cultural services inflation (including concerts and cinemas) rose from 5.4% to 8.3%.

"Even though there is still a wages and a CPI release to go before the Bank of England meeting on 20 June, it feels as though a cut then now seems very unlikely," Mr Dales said.

"Our forecast is that lower energy prices and a faster fading of persistence (due to the previous weakness of the economy) will mean inflation falls below 2% in the coming months and perhaps even close to 1% later this year."

"If so, the BoE may eventually end up cutting interest rates from 5.25% now to 3.00% next year."

However, he said he was "more worried" about that forecast now and it might not happen as soon.

As billed by our City editor Mark Kleinman yesterday, the used car business has gone into administration - just three years after listing in New York at a valuation of $8bn.

Cazoo had warned earlier this month it might need to file for administration, and has now appointed restructuring advisers at Teneo to handle the insolvency.

The business was launched in 2018 as an online retailer and supplier of used cars.

More recently it had become an advertising marketplace similar to Auto Trader, prompting 728 job cuts.

It now has about 200 employees.

The business, which invested aggressively in marketing, had struggled to turn a profit and had made losses before tax of £525.5m in 2022.

Teneo said almost 100 car dealers had expressed an interest in trading on its marketing platform and that administrators hoped to conclude a sale in the coming weeks.

We frequently report on unofficial house price data from the likes of Nationwide, Halifax, Zoopla and Rightmove - the official data lags behind a month or two, but we now have it for the year to March.

Average UK house prices increased by 1.8% in that time period, Office for National Statistics (ONS) figures show.

This left the average price at £283,000.

It represented a recovery after house prices fell by 0.2% in the 12 months to February.

Meanwhile, private rents increased by 8.9% in the 12 months to April.

ONS chief economist Grant Fitzner said: "Average UK house prices grew over the year for the first time since last summer.

"House prices saw an annual rise in every nation and region, except London and the South East, with Scotland seeing the fastest annual growth.

"After two years of unprecedented and generally accelerating annual growth, private rental price rises showed tentative signs of easing.

"Most nations and English regions saw a slowdown, with a notable easing in London."

By Sarah Taaffe-Maguire, business reporter

The London Stock market has not reacted well to a higher than expected inflation figure - 2.3%, rather than the 2.1% forecast. The FTSE 100 (Financial Times Stock Exchange index of most valuable companies on the exchange) fell 0.56% after the announcement.

There have been rises since that opening drop as morning trading wears on but not to the level of the close yesterday evening.

Leading the rally is Marks & Spencer with a sharp 8.77% share price after an already strong 18 months for the high street store. Today it reported a whopping annual profit rise of 58%.

The pound was up at a month high against the dollar this morning and now buys $1.2727. It was the same with sterling against euro as £1 buys €1.1732.