UK inflation falls to 9.9% but a higher peak is still to come – Industry Reaction

by | Sep 14, 2022

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UK inflation

Following the latest UK inflation statistics which saw a small dip in UK inflation mainly due to falling motor fuel prices, industry experts have commented on the peak that is still to come.

Richard Carter, head of fixed interest research at Quilter Cheviot: “Somewhat surprisingly, UK inflation saw a small dip in August bringing the figure to 9.9%, down from 10.1% in July. The fall in the price of motor fuel was the primary reason for the change in inflation, while rising food costs had the largest upward impact during the month.

 “In just a matter of weeks, we will see utility bills soar ever higher as the new energy price cap comes in – albeit now capped at £2,500 following the introduction of Prime Minister Liz Truss’ energy plan, which is considerably lower than the previous prediction which sat at more than £3,000. With hope, the cap on energy bills may mean inflation is now close to peaking, though last month’s fall could likely be a fluke and we may see inflation climb further still in the months to come. While the energy plan may help, it comes at the cost of higher levels of borrowing and government spending which could encourage the Bank of England to hike rates even further than originally expected.

 “All eyes will be keenly watching as the Bank of England makes its next move at its delayed Monetary Policy Committee meeting next week. Alongside the positive GDP figure released earlier this week, this latest inflation print being more positive than many had predicted means the Bank may opt for a slightly lower than anticipated 50 basis points hike. That being said, inflation remains extremely high, and the Bank may still feel it has no choice but to act, so a 75 basis points rate rise is certainly not off the cards.

 “The cost-of-living crisis is now well embedded and is already having a major impact on people’s finances, yet worse is likely still to come. Given the crisis is not going to be short-lived, the government’s energy intervention is welcome, but questions are already being asked as to whether it goes far enough. There will be continued pressure on the Prime Minister as the winter draws in, and the Bank of England will face a tougher challenge still.”

Rupert Thompson, Investment Strategist at Kingswood, said: “In contrast to the nasty surprise in yesterday’s US inflation data, UK inflation came in lower than expected in August. A fall in motor fuel prices led to the headline rate edging down to 9.9% from 10.1%, the first drop seen since last September. Even so, the core rate edged up from 6.2% to 6.3%, highlighting that the Bank of England still faces a major challenge returning inflation to its 2% target. While these numbers may make a 0.75% hike in UK rates next week somewhat less likely, rates still look certain to be raised by at least 0.5%.”

Tom Hopkins, Portfolio Manager at BRI Wealth Management, said:UK inflation came in at 9.9% in August. Lower than the forecasted 10.6% predicted, bucking a trend of continuous month on month increases we have seen since throughout this year. Whilst this reading shows UK inflation has eased somewhat, it remains near the 40 year high recorded last month. Today’s Inflation reading could be taken as an encouraging sign. Oil and food prices have already fallen from the peaks they hit over the summer following Putin’s invasion of Ukraine, plus this lower than forecasted reading comes in before the UK government’s plan to limit rises in energy bills. This month, newly appointed Prime Minister Liz Truss confirmed plans to freeze the average household’s gas and electricity bill at £2,500 for the next two years, a measure that will take the sting out of the future UK inflation figures. As inflation remains uncomfortably high for the bank of England, I don’t believe todays figure will be enough to curb them from continuing to raise interest rates next week as inflation is still well above its target rate.”

Andrew Aldridge, Partner at Deepbridge Capital, said: “With inflation remaining around a 40 year high, investors and financial advisers will be scratching their heads regarding where there might be inflation-busting investment opportunities. For long-term growth opportunities, venture capital might be an opportunity that can no longer be ignored – with unrivalled tax reliefs available via the Enterprise Investment Scheme, short-term tax planning can support longer-term growth opportunities.”

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