Some key views sent to IFA Magazine on the latest inflation figures.
Lombard Odier Investment Managers
Salman Ahmed, Strategist, said: “The lower-than-expected UK CPI print is in-line with the global disinflation theme in play on the back of the sharp fall in oil prices. Indeed, this trend is likely to strengthen in coming months. The implication of this development is that the BoE can take its time before starting the hiking cycle, pricing of which is already happening. That said, given disinflation has further to run, we think the markets will be very reluctant to change their view in the near-future.”
The Share Centre
Helal Miah, investment research analyst, said: “With the recent drop in oil prices it was inevitable that the UK inflation rate would be dragged down. However, this morning’s CPI release showed that the price fall consumers experienced was more than expected. There was zero inflation between November and December, while the annual inflation dropped from 1% to 0.5%. As a result Mark Carney will be prompted to write an open letter to the Chancellor to explain the deviation from the 2% target.
“With the supermarket price war intensifying, plans for energy utilities to set lower bills and the oil price continuing to fall, we believe there is scope for further falls and perhaps the possibility of deflation. Prior to this announcement, the first interest rate hike was expected in the third quarter of 2015. However, this should now be delayed and there may even be a possibility of no hike at all this year.
“Sterling has weakened moderately against other major currencies as a result of this morning’s announcement. While the prospect of deflation is worrying and partially reflects the relatively weak global economy, our view is this should only prove temporary. Delays to the interest rate rise is good for stocks and we believe that equities remain the asset class of choice.”
Investec Wealth & Investment
Guy Ellison, Head of UK equities, said: “UK inflation on a CPI basis undershot expectations for December, coming in at 0.5% year-on-year and driven by a combination of lower food and energy bills. The core reading, excluding these more transient factors, actually increased marginally to 1.3% year-on-year and it is this number which the Bank of England should focus on when considering rate policy. Indeed, with the ongoing fall in the oil price there is a chance that headline CPI approaches 0% in the coming months.
“The broader reaction to today’s data is likely to be modest weakness for sterling, as the need for the BoE to raise rates sooner rather than later to ward off inflation diminishes.”
Mark Williams, Business Line Manager for Inheritance Tax, said: “While the data released today from the ONS show there was no increase in the average house price in November compared with the previous month, the fact remains that the price of property in the UK continues to rise significantly year-on year. UK house prices have increased by 10.0% in the year to November 2014. The nil-rate band for inheritance tax was set at £325,000 in April 2009, when the average house price in the UK was £188,000 and yet since then house prices have risen by 44.1%. According to the latest figures, the amount of inheritance tax paid by UK families in 2013-14 rose by 8.6% compared with the previous year. More and more people are facing inheritance tax liability thanks to rising house prices, making it an increasingly mainstream tax problem. While recent comments from government highlight the importance of this issue, unless the nil rate band is increased, more and more people will find themselves facing the need to address this issue and look for investment solutions that help to deliver effective estate planning.”