16 October 2024
If you are covering the latest inflation figures from the Office for National Statistics, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“For the first time in more than three years inflation is back below the Bank of England’s 2% target. With inflation falling below this level and the pace of wage growth slowing, the conditions appear ripe for another rate cut at the Bank of England’s next decision in early November, and maybe even the one after in December too. This will please the government in the run up to the hotly anticipated budget, where we are being repeatedly told tough decisions are to be announced, so any sliver of good economic news will likely be pounced upon.
“Core inflation has fallen too, with the annual figure now standing at 3.2%. It continues to be much more stubborn than its CPI counterpart, but it is ultimately the more important factor in whether there is just one more interest rate cut this year or two. Andrew Bailey has said the BoE could get more aggressive with its cuts to interest rates if inflation continues to fall, but with bond yields rising again and a tricky budget to navigate, the market can’t currently decide on the direction of travel. The latest data may just give them their answer.
“Public sector pay deals are likely to slow core inflation’s march downwards, and there are other factors which will push inflation back up towards the end of the year, such as the rise in the energy price cap, so today’s data should be viewed in the wider context. Whether it rises enough to put a brake on two more rate cuts in 2024 or just the one remains to be seen, but for now the government and the BoE will be very pleased with the numbers out this morning.
“Today’s figure also confirms the state pension is to rise by 4.1% in 2025 as inflation has come in well below the increase in average wage growth. This means the triple lock mechanism has kicked into gear and given pensioners an above inflation income rise. The good news for them is that it means a rise of up to £473 a year from their state pension income – welcome relief given the loss of the £300 winter fuel allowance and cost of living payments that are now withdrawn. While it will provide some respite, it will not prevent hundreds of thousands being negatively impacted given those losses at a time when energy bills are on the up again.
“For government, while lower inflation will be welcomed, the confirmed rise in the state pension is another kick in the teeth at a crucial juncture. Wage growth was revised upwards on Tuesday, resulting in a higher inflation busting state pension rise than was first predicted, one that the government could ill afford at a time of stretched public finances. With the state pension likely to be of equal value to the personal allowance in the coming years and the fact we have an aging population, how long the triple lock can remain sustainable for remains to be seen.”
