The UK’s inflation rate unexpectedly held steady at three per cent last month, easing pressure on the Bank of England to embark on a second round of interest rate rises.Analysts had expected the Consumer Price Index (CPI) to rise to at least 3.1 per cent in October but a drop in oil prices offset an increase in food and drink prices, according to date from the Office for National Statistics (ONS).

CPI lower than Bank of England expectations

Although the Bank of England had been expecting an autumn rise in the CPI to an annual rate of 3.2 per cent, economists now expect inflation to begin tapering down as the effects of the post-referendum fall in the value of sterling begin to work their way out of the data.Nevertheless, the current rate is still well ahead of the government target of two per cent and means that the squeeze on household expenditure will continue, with inflation running almost a full percentage point ahead of wage rises.

UK inflation reaches peak

Yael Selfin, chief economist at KPMG, commented, “With monthly inflation gradually moderating, households will be relieved that the UK may have now reached the peak in year-on-year price rises.“However, the overall figures mask significant increases in the price of basic necessities such as fruit and vegetables, which are most likely to hit those already struggling to cope with the squeeze on real incomes due to the high inflation.”But Alistair Wilson, head of retail platform strategy at Zurich, said there could be some relief in sight for the squeeze on wages. “Higher inflation is creating a living standards headache for families as prices continue to rise faster than their pay packets,” he said.“However, there are signs that the worst of the squeeze on family finances may be coming to an end with British workers set for the biggest pay rises since before the financial crisis, likely to increase by between 2.5 and 3.5 per cent next year.

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Tax cuts and National Living wage keeping poorest above inflation

A spokesman for HM Treasury said, “We understand that people are concerned about increases in everyday costs. That’s why we have cut taxes and introduced the National Living Wage, which has lifted the wages of the lowest paid by over six per cent above inflation.“It’s also why we are bringing in an energy cap to help people with the cost of household bills.”Maike Currie, investment director at Fidelity International an investment management service, said, “Mark Carney can breathe a sigh of relief this month as the governor of the Bank of England has been spared from having to pen a letter to the Chancellor after the latest CPI figures show inflation remained steady.“While the Bank of England raised interest rates at the beginning of this month given concerns over inflation, it will take some time for inflation to fall back nearer the Bank of England’s two per cent target. This means cash-strapped consumers will continue to feel the pinch as wages lag price rises.“Homeowners on variable rate mortgages in particular will be feeling the biggest squeeze having to contend with the prices of everyday goods and services going up, and dealing with rising mortgage repayments.”

Pound sterling hit by EU referendum

Chris Williamson, chief business economist at IHS Markit the information services provider, added, “The recent surge in price pressures has primarily been due to the depreciation of the sterling since last year’s EU referendum, which has increased the cost of imported goods and services, but today’s numbers will add to the sense that the worst of this impact has already passed.“As far as interest rates are concerned, today’s numbers will dampen expectations on whether we will see further rate hikes anytime soon, though more important will be tomorrow’s wage data.“An absence of stronger pay growth alongside today’s unexpectedly steady inflation numbers will therefore not only dampen expectations that rates will rise again, but will lead to further debate over the wisdom of the Bank’s recent rate hike.”For related news and features, visit our Enterprise section.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory  

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