19 October 2022
If you are covering the latest UK inflation statistics, please see the following comment from Marcus Brookes, chief investment officer at Quilter Investors:
“Inflation in the UK has once again returned to above 10%, as August’s reading of 9.9% turned out to be a temporary blip. There is still some way to go in this inflation journey too given the Bank of England expects it to still go higher from here. Rising food prices continue to have a significant impact and were the primary reason for the increase, while the continued fall in the price of motor fuels made the largest, partially offsetting, downward contribution.
“As we head towards the winter and demand for gas increases, we will begin to see higher energy bills really come into play. While Prime Minister Liz Truss’ energy plan means they are capped at £2,500 for now, it has been made very clear that this iteration of government support will not be in place for as long as was once promised, and this could well have a knock-on effect on inflation. The dip in inflation seen in August appears to have been a fluke, and with the rapidly changing environment we are currently living in we are unlikely to see inflation fall for some time yet.
“One thing this will not have done is caused the Bank of England to reassess its approach to interest rates. It may be satisfied by the moves made in Westminster for now, but in the coming weeks, we will see what it really makes of the government’s fiscal policy as it makes its next move at its November Monetary Policy Committee meeting. This is just a mere few days after the OBR is due to update its forecasts on October 31st, so more volatility in the market is expected.
“However, the fact that the new Chancellor, Jeremy Hunt, has swooped in and reversed almost all of the costly changes announced at Kwasi Kwarteng’s mini-budget could go some way to help and the Bank may opt to dial down the hawkish rhetoric for now. That said, today’s news shows inflation remains stubbornly high and likely means the Bank feels it has no choice but to take decisive action with a 75 basis points hike.”
