UK inflation slips to 0.9% in October

UK inflation fell to 0.9% in October, lower than the 1% measured in September and below the rate of 1.1% predicted by economists. But analysts expect the cost of living to breach the 2% target next year.

Previously economists had said that the fall in the the value of sterling would push UK inflation, as measured by the Consumer Prices Index, up to 1.1%. Instead, the Office of National Statistics reported today that the rate slipped to 0.9% in October.

However, the prices of goods leaving factories saw their biggest increase since April 2012, rising to 2.1%.

Similarly, the costs of raw materials and oil as paid for by producers jumped to 4.6% - a record monthly increase.

Mike Prestwood, statistician for ONS, said:

"After initially pushing up the prices of raw materials, the recent fall in the value of the pound is now starting to boost the price of goods leaving factories as well."

"However, aside from fuel, there is no clear evidence that these pressures have so far fed through to the prices in shops."

Last month the Bank of England forecast that inflation would rise to approximately 2.7% by this time next year.

The expectation among economists that inflation is set to rise has been triggered by the fall in value of sterling following the Brexit referendum in June, which pushed up the cost of exports.

Since June that pound has fallen 16% against the dollar and around 11% against the euro.

For the past three years, UK inflation has continually been under the Bank of England’s target rate of 2%. Last year it fell to 0% - a rate not seen since similar records began in 1950.

According to the ONS the Retail Prices Index (RPI), which is another measure of inflation that includes housing costs, remained at 2% in October, unchanged from September.

Chris Williamson, chief business economist at IHS/Markit said:

“UK inflation rose less than expected in October, but looks set to creep higher in coming months as rising costs eventually feed through to consumers.”

"It's therefore likely to be only a matter of time before price hikes in retailers' supply chains start feeding through to the customer, as retailers seek to protect margins."

"The concern is that consumers are driving the economy at the moment, and higher inflation is starting to eat into people's spending power, subduing consumer spending."

Scott Bowman, UK economist at Capital Economics said:

“The fall in UK CPI inflation from 1.0% in September to 0.9% in October was a temporary stumble along its upward journey that should see it breach the 2% target next year.”

As from March next year the ONS will publish a new headline measure of inflation that will incorporate the costs of home ownership.

 

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