"As expected, UK deflation has been short-lived. Inflation is back in positive territory. As the big falls in oil prices drop out of the annual rate in the autumn, inflation should move back towards the 2% target." commented Andrew Sentance, Senior Economic Adviser to professional services network, PricewaterhouseCooper on the new inflation figures.

There is still a big disparity between goods and services price movements. Services inflation is 2.3%, whereas goods prices have dropped by nearly 2% over the past year.

Even though inflation is set to pick up, workers should see their earnings continue to increase in real terms. With the labour market tightening and skill shortages emerging, wage growth is likely to stay ahead of inflation.  

Now that fears of deflation have subsided, the Bank of England MPC should be taking the first steps to return the UK economy to more normal interest rates. With the recovery continuing, the conditions look right for UK interest rates to rise in the second half of this year, along with expected increases in the US."

                                                                                                                House price growth falls

Commenting on the ONS house price figures, Richard Snook, senior economist, PwC, said: “Price growth fell sharply in the UK. Growth in April declined to 5.5% from 9.6% in March. The average price of a UK house is now £271,000, down by £2,000 from the month before.

Our forecast for UK house price growth in 2015 is 5%. This requires a further softening of the market in the remainder of the year as affordability constraints and tighter mortgage lending weigh on demand.”

PwC will release an updated set of UK and regional house price forecasts in the upcoming UK Economic Outlook on 21 July where we will explore these trends in more detail.
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