20 November 2024
If you are covering the latest UK inflation data, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“Last month’s surprise fall in inflation, which left it below the Bank of England’s 2% target for the first time in over three years, has proven very short lived. This morning’s inflation figure from the ONS reveals UK inflation jumped to 2.3% in the 12 months to October 2024, up 0.6% compared to the 1.7% rise in the 12 months to September.
“Energy prices take some of the blame, after the Ofgem price cap on household bills lifted by nearly 10% last month, but other areas including the services sector have also contributed to the uptick, and the retail sector has also warned of potential inflationary pressures in the near future. Just yesterday, a group of 80 of the UK’s biggest retail bosses wrote to the Chancellor to air their concerns around the consequences of the changes announced at the budget. They warned that higher business costs, driven by increased employer national insurance contributions and the national living wage rise would need to be passed on to shoppers and could also impact employment and investment.
“Comparatively, in the US the Federal Reserve has seen an uptick in inflation which could result in a pause on rates, but growth has remained robust and is indeed at least part of the cause of this. Whereas, in the UK, the focus has been more on rising cost pressures, including uncomfortably high core inflation, while GDP prospects have barely moved.
“The Bank of England opted to cut rates again at its latest monetary policy meeting, but with inflation, wage growth and unemployment all on the rise, while stalling GDP continues to highlight the malaise the UK finds itself in, the pace of future cuts is looking much less certain. Expectations for further cuts have been scaled back considerably, with rates expected to remain above 4% throughout 2025.
“With just one more MPC meeting before year end, it is looking increasingly likely that the Bank will close out 2024 with a hold on rates. This is a clear reminder that short term inflationary pulses may return, potentially caused by factors such as obstacles to trade, labour market tightness, taxation and volatility in food and energy prices. Whether October’s uptick in inflation proves to be just a blip remains to be seen, however it seems more likely that the Bank may err on the side of caution in coming months as a growing list of inflationary risks emerge on the horizon."
