Comment from around the industry:
Ben Brettell, Senior Economist, Hargreaves Lansdown: “Inflation jumped unexpectedly in August, with prices rising 2.7% year on year – a six month high. Markets and economists had expected a small drop from 2.5% to 2.4%. Goods and services both rose in price, and company input prices rose 8.7% on the year, in a clear sign that inflationary pressure could be building in the domestic economy. Theatre tickets, transport and autumn clothing were the biggest upward contributors.
“Sterling gained sharply, reaching an eight-week high against the dollar, as traders adjusted their interest rate forecast. The numbers reinforce expectations that policymakers will gently lift interest rates over the next couple of years. The figures won’t come as welcome news to the Bank of England though – they’ll be desperate to leave policy unchanged until we get some clarity over Brexit, and won’t want to be forced into a rate rise by accelerating prices. A rise to 1% is tentatively priced in for around May next year, though clearly a disorderly Brexit would force a dramatic rethink.
Simon Longfellow, Head of stepstoinvesting.com: “An increase in inflation will come as no surprise to consumers, especially after last month’s rate rise. However, they mustn’t be fooled into thinking they’ll see much of a difference to their money. Remember, inflation remains higher than cash savings rates and even with the rate rise it could be months before they benefit. And that’s providing their bank actually pass the rate on.
Struggling savers looking to secure a return on their money, should think about looking at alternative options rather than letting their money sit in cash accounts decreasing in value. In fact, UK savers saw the buying power of their money fall by £30.3bn last year, the equivalent to £1,147 per household. This should serve as a stark reminder of the need to know about other options. With investing, being aware of the risks and benefits involved can provide consumers with the confidence to be able to make decisions that could help them benefit from higher yielding alternatives.”
Miles Eakers, Chief Market Analyst at Centtrip: “UK inflation rose for the second consecutive month and at a much faster pace than expected. The Bank of England (BoE) will be keeping a close eye on the pace of price increases, but the key is the outcome of the Brexit meeting in Salzburg.
“The IMF and the BoE have both warned of the negative impact of a “no-deal” Brexit, but Brexiteers continue to try and derail UK Prime Minister’s Chequers plan. A no deal scenario is probably the worst outcome for the UK economy and the Pound – it would lead to further uncertainty and a potential reaction from the markets.
“Any positive UK-EU news today will provide a much needed boost to Sterling, but with US President Donald Trump’s global trade offensive in full swing, any rise in the Pound against the Dollar is likely to be short-lived.”
Alistair Wilson, Head of Retail Platform Strategy at Zurich: “Inflationary pressures are continuing to strain household spending power. Despite unemployment at its lowest in 40 years and wages showing signs of growth, the pick-up in prices means that workers’ pay packets are unlikely to feel the benefit of any wage increases. With prices rising, consumers need to be pragmatic with their everyday spending and take this opportunity to review their finances.
“This is particularly the case as one in six admit they have no disposable income, and a quarter have no savings, leaving them financially vulnerable. Savers shouldn’t be lulled into a false sense of security by recent interest rate rises. Rates remain dwarfed by inflation, even at banks which have passed the increase on. Those who can afford to should think about putting their money away for the longer-term, where a stocks and shares ISA or a pension fund could help them outstrip inflation and grow their wealth.”
Melanie Baker, senior economist at Royal London Asset Management: “Today’s figures look likely to surprise the Bank of England somewhat. As of August, BoE staff were projecting 2.4% inflation for August, and that was before July’s small downside surprise.
“Domestic inflationary pressure seems likely to pick up in coming quarters. Brexit permitting, that should leave the BoE on track to raise rates next year once at least some of the uncertainty is behind us.
“There was bad news for the consumer as inflation moved higher in August. Meanwhile, the stronger than expected inflation data raises some questions for the BoE.
“The main drivers of the move up in headline CPI inflation included theatre shows, computer games, sea fares and clothing. Some of these impacts may well reverse and there was some downward pressure from mobile phone charges, furniture and households goods (the latter two perhaps partly reflecting the past boost from sterling weakness wearing off).”
