20 September 2023
If you are covering the latest UK inflation figures, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“Figures from the ONS this morning reveal an unexpected downtick in inflation to 6.7% in the 12 months to August 2023, despite rising prices at the petrol pumps. It's a considerably more positive outcome than the uptick many economists had predicted largely driven by a significant fall in food prices, while core inflation also reduced from 6.9% to 6.2%.
“While this dip in inflation eases the pressure somewhat on the Bank of England to raise rates once more, it likely still remains poised to pull the trigger on another 25bps interest rate hike tomorrow. If this proves to be the case, many will be asking when enough is enough. The BoE has had a tough task in navigating its fight against inflation, and this morning’s figures suggest it may finally be having a real impact.
“While inflation fell slightly in August, just yesterday the OECD forecast the UK to have the highest inflation rate among the G7 nations, expecting it to average 7.2% in 2023 – a rise on its previous forecast of 6.9%. Households remain under immense pressure given inflation is still well above the BoE’s 2% target and these figures will come as a blow, not least because the Bank of England is still expected to keep its foot on the pedal for now.
“Economic data has begun to sour and businesses and consumers appear to be starting to buckle following the sharp increase in interest rates over the last 18 months. The rate at which the BoE hiked rates to 5.25% means the toll could be rather severe, and a recession is not yet entirely off the cards so the BoE will need to tread very carefully.
“Today’s inflation figure also has real political ramifications too. While this downtick is a positive, it will need to fall considerably more in order to meet Rishi Sunak’s target to cut inflation in half by the end of the year. With an election at most a year away, failing to hit that target would hurt the credibility of the Conservatives and make a Labour victory more likely. While a pause in interest rates is nearing, the beginning of political volatility will begin to come into view for markets.”
