Today the ONS revealed that the UK’s CPI rose slightly by 0.5% in September 2023 and in response industry experts have shared their reaction with IFA Magazine.
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services: “Though inflation saw a timid increase of 0.5% in September, this is unlikely to spiral into a full revival and will not unduly perturb the Bank of England ahead of the next rate setting decision.
“September’s upward trend can be attributed to an increase in fuel prices, which may yet be exacerbated by the escalating conflict in the Middle East. Underlying inflationary pressures have been steady throughout the year, but the back-to-school season and increased private school fees may have also contributed to September’s spike.
“However, despite today’s figures there are signs that inflation will continue to subside in the coming months. The slower increase in food prices will be a welcome relief to hard-pressed households, while the sharp fall in the OFGEM energy price cap will further reduce price pressures in October.
“Economic activity remains subdued and the labour market is slowly loosening, indicating that inflation should fall enough to hit the government’s desired year-on-year target of 5% or lower by December.”
Josh Graham, Co-Founder and Chief Marketing Officer at Airtime Rewards, comments: “Today’s lack of movement shows the fight against inflation is far from over, with both retailers and consumers feeling the persistent financial strain.
“This has significant consequences for consumers, impacting their everyday spending and overall standard of living, while also exerting pressure on retailers as a whole.
“In light of this, the importance of brand loyalty is more important than ever as businesses work to entice and retain customers who are hunkering down amid the cost of living crisis.”
Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said: “UK Inflation, as measured by the Consumer Price Index including housing, remained at 6.7% in August. A continuing drop in food prices would be a welcome relief from consumers, but there remains worryingly higher prices in housing and rental costs. In addition, increasing global oil prices offset any benefits through higher transport costs. With growth as anaemic as it is, debates regarding whether the economy is in recession are largely academic.
“The arc lights now shift to the Bank of England, in its continuing struggle between the Scylla of persistent inflation and the Charybdis of high interest rates. It is common to expect a lag between high interest rates and the transmission of its effect into the wider economy. The Bank of England’s decision on interest rates would take into consideration this lag, to keep rates on hold. As wage growth outstrips inflation for the first time, this could have a beneficial effect on the economy – on one hand providing some welcome pause in the increasing rents and mortgage costs, while on the other assisting the beleaguered economy start on a sustainable growth path through increasing consumer disposable income, albeit small.”
Derrick Dunne, CEO of YOU Asset Management, commented: “Another month without a rise in Consumer Price Inflation is good news albeit not the fall many wanted to see. CPI remained unchanged in the month thanks to a combination of higher and lower factors, with food and beverages falling, but those being cancelled out by petrol and diesel price rises.
“That said, with no change in the headline inflation rate, it may suggest this precedes a fall in the coming months. However there are many moving parts at play at present, and as Gerome Powell was quoted, “it is akin to navigating by the stars under cloudy skies”.
“In the short term we should expect market volatility to continue, which could provide investors with long-term opportunities. Anyone unsure about the positioning of their financial plan should contact their financial adviser.”
Claire Trott, divisional director for retirement and holistic planning at St. James’s Place said: “The potential increase in the state pension in April, if the triple lock is honoured, is due to be 8.5%. It has been mentioned that this could actually only be 7.8% if the measure of average income is adjusted to remove bonuses. This has previously been included so this would purely to reduce the increase and not because it is deemed to have been a flawed measure.
“However, for those who have saved for their retirement and have other income, or are in fact still working, won’t see the whole benefit of this increase due to the frozen personal allowances and tax bands.
“Take the example of someone with extra income of £5,000pa gross. With a full new state pension they would have paid around £613 in tax, which is 20% of their income, including the state pension over the personal allowance of £12,570. Assuming that the personal allowance remains frozen in 2024/25 as expected then the same personal next year will pay tax of around £794, even though we are assuming the income outside of the state pension isn’t increasing. This basically means that the increase in state pension will be eroded and they will only really benefit from an increase in the money they have in their pocket of 6.8%.
“This would be exacerbated for those who have more private income and fall into higher rate bands. We should remember that state pensions are paid gross and any taxation is usually taken from other sources of income if possible through tax code adjustments, or for those with income outside of the PAYE regime, through self-assessment at the end of the year.”
John Glencross, CEO and Co-Founder of Calculus, said: “Though inflation remains the same today, the report of wages outpacing inflation for the first time in two years is a positive development for both consumers and businesses. The trajectory of recent economic data, on the whole, offers some reassuring signs following a period of economic sluggishness. Nevertheless, there is an awareness that a technical recession remains a possibility. With forthcoming political uncertainties, it is reassuring to see cross-party support for incentives to drive funding to small innovative UK businesses.”
“The Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) remain crucial pillars of support for UK business, fostering growth and championing innovative enterprises. Calculus, which pioneered the first approved EIS fund 24 years ago, remains unwavering in its commitment to supporting UK SMEs. Drawing upon our extensive experience in nurturing companies within rapidly expanding industries, we continue to offer innovative and tax-efficient venture capital investment opportunities for investors.”
Simon Webb, managing director of capital markets and finance at LiveMore, commented: “The annual Consumer Prices Index(CPI) inflation has stalled again and remained stubbornly at 6.7% in September. But other elements of the inflation figures have also not budged.
“The Consumer Prices Index including owner occupiers’ housing costs (CPIH) also stayed where it was last month at 6.3% as did core CPIH at 5.9%, which excludes energy, food, alcohol and tobacco. The only minor shift downwards among these four inflationary figures was core CPI at 6.1%, down from 6.2% in August. This was mainly due to goods such as food falling slightly but services like transport were up.
“Whether this is enough to stave off another base rate rise next month is debateable and no doubt the next Monetary Policy Committee meeting will be a hive of debate. The last meeting was as close as it gets with members voting 5 to 4 in favour of keeping base rate at 5.25%. With average wage growth exceeding inflation, for the first time in nearly two years, the MPC may decide to raise rates again, which is not what we want to see.”
Graham Crossley, NHS pension expert at Quilter: “Today’s Consumer Price Index figure (CPI) has profound implications for NHS pensions. With last year’s September inflation figure at a staggering 10.1% and this year’s figure hovering at 6.7%, the continued high inflation rates are eroding the real value of the 1995 NHS pension benefits for active members.
“While the CPI serves as a metric for adjusting pensions in retirement, and those in the 2008 or 2015 schemes, the rapid increases are causing concern for thousands of members in the 1995 scheme. The final salary link to pensionable pay, once seen as a beneficial tether to pay progression, is increasingly restrictive following many years of sub-inflationary pay awards. With rising inflation, its real value is diminishing and instead of offering a reliable safety net based on years of service, it’s becoming a leash, holding pension holders back from realising the value of their benefits amidst the cost of living crisis. NHS Pension scheme members, especially those eyeing retirement, must stay vigilant to these economic shifts and seek financial advice to help mitigate the impacts in whatever way possible.
“During a time when many in the NHS are already very concerned about their pay packets these kinds of issues in relation to pensions serve to pour fuel on the fire.”
Danni Hewson, AJ Bell head of financial analysis, said: “September’s stickiness rather ruins the narrative. UK inflation is not making a slow but sustained backtrack, it’s got trapped between the push and pull of prices at the pump and those on supermarket shelves.
“For households the current situation probably feels a bit like being given a bonus then having it all taxed away. Anyone who’s had to fill up their vehicle in the last few weeks can be forgiven for uttering a few expletives as the numbers kept climbing up, whilst those who’ve stocked up on milk, eggs and cheese should have had a more pleasant experience. Price volatility happens all the time but at the moment it’s raising big questions about whether the government will meet its target of halving inflation by the end of the year and, more importantly, how it might impact Bank of England policymakers ahead of their next interest rate decision.
“There are no easy answers here. On the one hand we know the impact of energy price hikes should finally wash through next month, but the question is how much of that cooling affect will be tempered by continued global uncertainty which is pushing up the price of oil. And with wage growth now outstripping inflation people might feel they’ve got a bit more cash to splash on a night out at the theatre or a night in a hotel – a decision which could give the green light for these sectors to raise prices once again.
“Because there is a lag, some businesses held off on raising prices and are now finding they have no choice but to do so, especially if customers keep on coming. And there is also a lag when it comes to the impact of interest rate hikes, a lag which would have been at the forefront of the minds of MPC members last time out and is likely to continue to influence their decision-making next month. To that end markets are still pretty wedded to the notion that rates won’t change next month, but there is a degree of uncertainty that wasn’t present yesterday and that’s reflected in share prices this morning.”
Mathieu Savary, Chief European Strategist at BCA Research, a leading provider of macroeconomic research to investors comments: “The UK’s core CPI for September was stronger than expectations of 6%. In light of the recent speech by Huw Pill, it would be rational to see Gilt yields move higher in the short-term. However, the economy continues to deteriorate and wage pressures seem to be easing. Hence, the BoE is more likely to stay in the “high for longer” camp rather than switch to the “higher for longer” one. As a result, investors should refrain from chasing yields higher over the coming months.”
