18 October 2023
If you are covering the news that UK consumer price inflation was unmoved year-on-year, please find below a comment from Marcus Brookes, chief investment officer at Quilter Investors:
“UK inflation’s march back down to target can very much be described as ‘slow and steady’, with CPI refusing to budge in September at 6.7%. Clearly the UK is not winning any races with this trajectory as inflation still remains incredibly elevated and much more so than peers. With geopolitical tensions rising, energy and petrol prices are once again on the way up and inflationary pressures risk hitting an economy that has gone through a painful cost of living crisis. For now, the higher for longer interest rate narrative will continue to persist.
“However, while wages are now rising faster than prices, for many the pain is yet to be truly felt and the Bank of England is in a difficult position. It paused on raising interest rates at its last meeting, but this reading means we are likely to see at least another rate rise. The question becomes when they have done enough, but with inflation taking so long to come back down to more palatable levels that is a difficult question to answer and risks policy misstep. We think the Bank of England has done enough and will be led by external factors, such as the Federal Reserve, but they will not want to appear to be doing nothing, especially when inflation remains so high.
“This elevated period of inflation and interest rates also makes the economic pain and potential recession more likely in 2024. GDP growth is already faltering and it will take a big effort for a recession to be avoided. The pain may have been deferred to 2024, but as such the BoE will be required to act sooner than it may like or expect to I imagine. For investors, it is at the point of the first rate cut that they want to make sure they have exposure in the market as this will likely prompt a strong rally.”
