Helal Miah, investment research analyst at The Share Centre:

Good news for equity investors as UK inflation falls to lower than expected 2.4%

  • UK inflation rate fell more than expected in September to 2.4%, down from 2.7%
  • The fall was largely driven by lower prices for food and non-alcoholic drinks
  • A positive environment for the consumer following yesterday’s unemployment data which showed a pickup in wage growth as real income growth continues to expand and wage rises are not hitting inflation

“We have had a slightly surprising set of September inflation data this morning as price rises slowed down after hitting a six-month high in August. While the market had anticipated the month-on-month figure for September to come in at +0.3%, the result came in at just 0.1%, falling way short of August’s +0.7%. The year-on-year growth rate also fell short of expectations at 2.4% compared to 2.7% in August.


“The fall was largely driven from food and non-alcoholic beverages while transport, recreation and clothing also made a downward impact. Energy prices counteracted this somewhat.

“This in contrast to the latest set of unemployment data released yesterday which showed wage growth had continued to steadily pickup. This is good news for the UK consumer meaning that real income growth continued to expand. More importantly, it means that wage rises are not yet hitting inflation leaving the MPC with more room for manoeuvre in deciding when next to raise interest rates. Upon the release we saw an immediate pullback in sterling as the market deems that the pace of rate rises could now be even slower.

“The slower pace of rate rises will be welcomed by equity investors especially when there is so much political and economic uncertainty caused by Brexit and other geopolitical themes. The slower pace of rate rises should also mean that equity returns are still likely to be superior on a risk adjusted basis than cash, which is one of the mains reasons why we still believe that investors should still have shares as a significant part of their portfolios.”


Sarah Coles, personal finance analyst, Hargreaves Lansdown:

“In the perpetual race against inflation, wages are currently in the lead, and edging further ahead. Unfortunately, further back in the pack, and limping along in last place, are savings rates.”

“Inflation was 2.4% in September, which means that only 19 savings accounts offer a rate higher than inflation: that’s less than 2% of the market.In fact, there are almost as many savings accounts currently open to new customers  paying 0.1% or less.”


“The inflation-busting accounts are all fixed rate deals, so every single person with their money in easy access accounts is losing money once inflation is taken into account.”

“To make matters worse, FCA figures show that the longer you’ve left money sitting in an account, the more the rate is likely to have been cut, and the further it will have fallen behind inflation. It means that those people who think they are taking the least risk possible by tucking their cash into a savings account and forgetting about it, are actually guaranteeing that they lose money.”

“Of course, holding some money in savings accounts is essential. We need 3-6 months’ worth of expenses as an emergency savings safety net, and any expenses we’re saving for in the next five years should be in some sort of savings account.”


“The key is to put your money in the right place – with emergency cash in an easy access account, and money you are saving for a year or longer in a fixed rate account in return for a higher interest rate. You also need to stay active and move your money when a deal expires. Online savings marketplaces can make this more straightforward.”

“Finally, for money you are saving for 5-10 years or more, you should consider whether it should be in a stockmarket-linked investment. Your capital will be at risk, but over the long term it has far more potential for growth than cash in a savings account, so you can soup up your savings performance and stand a far better chance of overtaking inflation.”

Keith Haggart, managing director of lifetime mortgage provider Responsible Lending:


“You can almost hear the back slapping in Threadneedle St as the August rate rise appears to have done its job.

“The cooling effect on CPI of a price boom last year in the recreation and culture sectors was already on the radar and, coupled with interest rates, appears to have brought inflation hurtling back down towards the Bank’s 2% target.

“Wage growth has come back to life and remains one of the most significant threats to the Bank of England’s 3% trigger but the housing market is set to be the big winner in this scenario.


“As savers continue to hold their heads in their hands, house prices will likely be sustained over the medium-term by attractive mortgage rates complemented by stronger affordability and borrowing power thanks to sturdy pay packets.

“None of this really changes the long-term picture of course. Britain’s direction of travel has been programmed into the country’s on-board computer and slight adjustments to expectations like this are gentle bends not sidings.”

Alistair Wilson, Head of Retail Platform Strategy at Zurich:“Over the last few months employee’s pay packets have grown at their strongest rate since the financial crisis, but when you put inflation into the mix, the growth is much more restrained. Inflation may have dropped to 2.4%, but there is continued tension on household spending, which is eating away at take home pay and impacting how much people are able to save.

“Three in five people say a financial shock would negatively impact their mental health and more than eight in ten say they wake up at night worrying. But despite this, a quarter have no savings and one in six have no disposable income. With prices continuing to rise, consumers need to be pragmatic with their everyday spending and take this opportunity to review their finances and consider steps to protect their money. Those who can afford to should think about putting their money away for the longer-term, a stocks and shares ISA or a pension fund could help them outstrip inflation and grow their wealth.”

Ben Brettell, Senior Economist, Hargreaves Lansdown:

Inflation slowed to 2.4% in September, down from 2.7% in August and undershooting economists’ forecasts of a small rise to 2.8%. This means state pensions will rise by 2.6% under the triple-lock, where pensions increase each April in line with wages, inflation, or 2.5%, whichever is higher. Wages grew 2.6% in the relevant period.

But despite the decrease in the headline inflation rate, there are signs inflationary pressures are building in the UK economy. The ONS said yesterday that wage growth reached a ten-year high in the three months to August, and today’s data showed input prices for companies increasing at 10.3%, largely driven by a higher oil price.

In the UK and across the developed world, inflation looks to be rearing its head again with the global economy growing strongly. This means central banks gradually tightening policy and bringing to a close a decade of cheap money. Along with continued tensions between the US and China, this is a key reason for stock market jitters over the past couple of weeks.

The Bank of England will be desperate to leave policy unchanged until we get some clarity over Brexit, but two or three interest rate rises are tentatively pencilled in over the next couple of years to bring inflation back to target.

Melanie Baker, Economist, Royal London Asset Management, said:

“There was some better news for the consumer today – inflation is rising at a slower pace than pay growth. Today’s release gives the Bank of England a bit more breathing space. However, with domestic inflationary pressure still likely to pick up in coming quarters, the Bank of England still looks on track to raise rates next year, assuming some of the Brexit uncertainty is behind us.

“In a reversal of developments last month, consumer price inflation (CPI) surprised consensus on the downside by two-tenths in September, having surprised on the upside by three-tenths in August.

“In coming months, the tight labour market should keep up pressure for pay rises. But, for now, the weaker than expected data today brings the headline inflation figures back into line with Bank of England forecasts from August.

“September CPI came in weaker than expected at 2.4% year on year (consensus: 2.6%) after 2.7% in August. The main drivers of the move down in CPI were largely the same as those pushing inflation up last month (theatre shows, food, sea fares and clothing), offset in part by upward pressure from energy prices Computer games – a volatile component- also added to the downward pressure.”

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