Inflation falls slightly – industry reaction

Latest Office for National Statistics (ONS) data has shown that inflation fell slightly in October to  3.6 per cent, from 3.8% in September.

Core Inflation came in at 3.4% in the 12 months to October, down from the 3.5% in September and below the 3.7% forecast by the market

Commenting on today’s inflation figures for October, ONS Chief Economist Grant Fitzner said “Inflation eased in October, driven mainly by gas and electricity prices, which increased less than this time last year following changes in the Ofgem energy price cap. The costs of hotels was also a downward driver, with prices falling this month.

“These were only partially offset by rising food prices, following the dip seen in September.

“The annual cost of raw materials for businesses continued to increase, while factory gate prices also rose.”

Anna Leach, Chief Economist at the Institute of Directors, said “Inflation has continued to inch downwards in today’s data, increasing the likelihood that December will see a welcome rate cut. Goods, services and core inflation all eased, although food inflation did pick up again to 4.9%.

“We’re drawing ever closer to a Budget which is expected to dampen already subdued demand further via another increase in the tax burden. While uncertainty will hopefully diminish, that is unlikely to fully cancel out the drag on investment and hiring from further tax rises. There’s one more inflation release before the next interest rate decision, but with a weaker near-term outlook in prospect, it seems more certain that the Monetary Policy Committee will on balance cut rates in their December meeting.”

Neil Rudge, Chief Banking Officer for Commercial at Shawbrook, said “After stubbornly holding at 3.8% last month, inflation edged downwards to 3.6% in October – giving consumers and businesses some respite ahead of seasonal celebrations. With the Autumn Budget being announced next week, this is also good news for the Government. However, Rachel Reeves is playing a game of tug-of-war with British businesses, championing them for investment while simultaneously making it more expensive for many to operate – with last year’s decision to raise NICs proving especially damaging.

George Lagarias, Chief Economist at Forvis Mazars said “Growth can’t ignore the trade war and inflation can’t ignore gravity. From this perspective, today’s number comes as no surprise, bringing us that much closer to a December rate cut. All sub-components, factory input and output prices as well as inflation came in lower than expected. Given the slowdown in the housing market, it becomes more imperative for The Bank of England to act sooner rather than later.”

“Whilst brighter conditions will emerge when price increases begin to ease, interest rates come down, and the budget drama blows over, business as usual continues for the nation’s SMEs. Some businesses will understandably be holding back for the time being, while others will be implementing their growth plans regardless of the macro-environment. No matter where a business lands on that, external finance remains a pivotal part of the puzzle.”

Julian Jessop, Economics Fellow at the free market think tank the Institute of Economic Affairs, said “Inflation is heading in the right direction again, but it is far too soon to sound the all clear.

“The fall in the CPI measure to 3.6% in October, from 3.8%, was widely expected. However, inflation is still well above the Bank of England’s 2% target.

“Moreover, there is still a worryingly large gap between inflation in the UK and in the euro area (where it is expected to be 2.1% in October). This gap can mostly be explained by Government policy choices, including the large increases in labour and other business costs since last Autumn’s Budget.

“The breakdown of the latest data also shows that UK inflation is still sticky. The fall in the annual headline rate can be entirely accounted for by the favourable base effects in domestic energy inflation. Bills still rose, but by less than in the same month last year.

“These bills are included in “housing and household services”, where the annual inflation rate remains high (at 5.2%).

“Otherwise, not much changed – although there was an unwelcome pick up in food inflation (from 4.5% to 4.9%).

“The core measure (excluding food and inflation) did at least tick down to 3.4%. But overall, there is little here to change anybody’s mind about the outlook for inflation. As such, today’s data will have no impact on the decisions in next week’s Budget.

“The fall in inflation was at least in line with the Bank of England’s forecasts, removing one barrier to an interest rate cut next month. However, the main reason why interest rates are likely to fall further is the weakness of economic activity, which is likely to be compounded by the announcement of even more tax increases next Wednesday.”

Suren Thiru, ICAEW Economics Director, said:“While these figures may fuel optimism that UK inflation has turned a corner, this decline is more reflective of a smaller uptick in October’s energy bills compared to a year ago than evidence that households’ financial worries are easing.

“October’s slowdown is the start of a winter inflation wind-down with lower food and fuel costs likely to pull the headline rate below 3% early next year, despite persistent pricing pressures from elevated employment costs.

“The Budget is a double-edged sword for inflation as while tax rises can be deflationary by dampening demand in the economy, the upward pressure from any rise in business costs risks giving inflation a second wind.

“Though the conditions for a December interest rate cut are falling into place, the Budget is a last obstacle as rate-setters will want to gauge the effect of the policies announced before authorising another rate reduction.”