UK inflation rate records unexpectedly large dip

The UK inflation rate fell to 2.4 per cent last month – a greater fall than economists had been predicting.

UK inflation rate records unexpectedly large dip
Data from the Office for National Statistics (ONS) has shown a fall in inflation to 2.4 per cent, with a decline in food prices being the principal factor behind the fall after the Consumer Price Index had unexpectedly risen to 2.7 per cent in August.

Good news for the UK economy

The figures came as good news for the government and consumers after ONS data a day earlier had shown that regular pay rates were increasing at 3.1 per cent, their highest in almost a decade.Howard Archer, chief economic adviser to the EY ITEM Club, said, "The dip in inflation provides a further flip to consumer purchasing power following recent firmer earnings data.“September’s drop reinforces belief that August likely marked the 2018 peak in inflation, but it could prove relatively sticky in the near term.“This is likely to be the consequence of a higher oil price, previously announced rises in domestic energy prices and recent sterling weakness.”
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Interest rates unlikely to rise in near future

Andrew Wishart, UK economist at Capital Economics, added, "With inflation in line with the Bank of England's forecast, and measures of domestically generated cost pressures, such as core inflation and services inflation falling back, this reduces any pressure on the MPC [the bank's Monetary Policy Committee] to act again before it can assess the likely impact of the Brexit negotiations."The likelihood that the figures had pushed back the chances of another rise in interest rates in the near future resulted in a decline in the value of sterling against both the dollar and the euro.Mike Hardie, head of inflation at the ONS, said, "Food was the main downward pull on inflation as last year's September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak. However, it wasn't all one-way traffic with energy suppliers pushing up their prices."

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Suren Thiru, head of economics at the British Chambers of Commerce, suggested that the trajectory of inflation was likely to fluctuate over the coming months "as downward momentum from a more subdued economy trades off against upward pressure from the persistent weakness in sterling".He said, "The pick-up in producer prices indicates that there are still substantial supply chain price pressures. Businesses continue to report that the cost of imported raw materials remain significant, which could increase consumer prices again in the short-term as these high input costs pass through supply chains.“Against this backdrop, the Autumn Budget must include measures to address the escalating burden of up-front taxes and costs associated with doing business in the UK to give firms the headroom needed to adjust to Brexit and to invest, recruit and grow.”

House price growth continues

The CPIH ­– the index that includes owner-occupiers' housing costs – stood at 2.2 per cent in September, down from 2.4 per cent in August. "UK house prices again increased across the year with growth particularly strong in the east and west Midlands. We continued to see a slowdown in London and the East of England," said Mr Hardie.The September CPI figures will be used by government to determine the 2019-20 increase in both the state pension and business rates - the latter causing consternation to retailers who are facing increasing competition from online shopping outlets.The British Retail Consortium (BRC) calculated that the inflation rate would mean a £180 million rates increase for retailers.Helen Dickinson, chief executive of the BRC, said, “These figures confirm that the retail industry, which is under significant pressure from public policy and a consumer and technology-led transformation, will face yet another eye-watering rise in business rates next April."The burden of the current business rates system, which is in urgent need of reform, is leading to store closures and hindering the successful reinvention of the retail industry.“Ministers need to act to address this £180 million increase in retailers’ already unsustainable business rates bill, along with other public policy burdens which retailers are struggling to absorb the cost of.“We need a freeze in the business rates multiplier until the next revaluation to help save shops, protect jobs, and future-proof retail, and to give the government time to work with industry to reform the business tax system and make it fit for purpose in the 21st century.”Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Global Mobility Toolkit download factsheets resource centreAccess hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online DirectorySubscribe to Relocate Extra, our monthly newsletter, to get all of the international assignments and global mobility news.