Credit, Collections & Insolvency News
Latest Office for National Statistics (ONS). data has shown that Inflation unexpectedly to 1.7 per cent in the year to September, the lowest rate in three-and-a-half years,
Lower airfares and petrol prices were the main drivers behind the surprise slowdown.
City Analysts had expected the rate to drop to 1.9 per cent, while the Bank of England forecast a smaller decline to 2.1 per cent. Year-on-year inflation fell to 1.7% in September below expectations of 1.9%.
Commenting on inflation figures for September, ONS Chief Economist Grant Fitzner said “Inflation eased in September to its lowest annual rate in over three years. Lower airfares and petrol prices were the biggest driver for this month’s fall.
“These were partially offset by increases for food and non-alcoholic drinks, the first time that food price inflation has strengthened since early last year.
“Meanwhile the cost of raw materials for businesses fell again, driven by lower crude oil prices.”
Anna Leach, Chief Economist at the Institute of Directors, said “Today’s decline in inflation follows hot on the heels of yesterday’s softer labour market data, and helps smooth the path to the next rate cut. Private sector regular wage growth is now below 5%, vacancies are close to pre-pandemic levels and PAYE data suggests employment is weakening – all of which point toward diminishing inflationary pressure. But, there is still inflationary pressure out there. Inflation is set to rise next month as the 10% rise in the Ofgem price cap comes into effect, oil prices are volatile, public sector pay settlements will contribute to stickiness in wage growth and the Bank will need to assess the inflationary impact of the Budget. How these different factors play out will ultimately define the pace of interest rate cuts.
“This Budget has a lot of boxes to tick. With inflation back at target, the public finances need to be stabilised without undermining investment and employment incentives. And business and market confidence must be secured to underpin the investment needed to lift the economy and public finances. It is vital that short-term pressure to plug the deficit does not lead to decisions that conflict with the urgent need to grow the economy. The business tax roadmap will be a useful communication tool as well as an important part of the plan to deliver clarity and stability for business.”
James Burgess, Head of Commercial and insolvency expert at Atradius, said “UK inflation has dropped to 1.7%, the lowest in over three years, and with interest rates stabilising, the outlook for the economy is improving.
“Businesses and consumers alike will be feeling hopeful following this news, with chances of another interest rates cut being more likely in November.
“All eyes are now on the Labour Government as the Autumn Budget approaches at the end of the month. Many will be hoping for tax relief and better National Insurance contributions.
“Business and economic conditions are also looking up. We’ve seen an increase in business confidence – something that should hopefully continue to improve as we progress into 2025. However, with business insolvencies still high, firms need to stay cautious. Their focus should be on increasing liquidity, diversifying supply chains, and protecting credit agreements with insurance to safeguard against risks.”
David Bharier, Head of Research at the British Chambers of Commerce said “Today’s data showing CPI has eased further than expected to 1.7% continues the move away from a prolonged period of high inflation. Coupled with an easing to average earnings growth, businesses will be looking forward to a clearer path for further interest rate cuts.
“Our research has shown that a steadily declining number of businesses are concerned about inflation. In our recent Quarterly Economic Survey, 46% of businesses cited inflation as concern, down from the all-time high of 84% seen in 2022. Taxation has instead emerged as the top issue of concern.
“However, major uncertainties remain. With escalations in the Middle East conflict, oil and energy prices are likely to be impacted. Our latest Forecast expects inflation to tick higher towards the end of the year at 2.6%. Core inflation also remains quite stubborn and owner occupiers’ housing costs continue to rise.
“This month’s Budget is a critical juncture. Businesses will need to see action on implementing an effective industrial strategy, solving the investment puzzle and supporting global trade, particularly with the EU.”
Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said “Today’s better than expected inflation data add to the growing evidence that UK interest rates are far higher than they need to be. The cooling in the labour market should also ease fears about services inflation.
“Admittedly, the September numbers were flattered by swings in transport costs. The rise in domestic energy bills also still means that inflation will jump above the 2% target again in October.
“Nonetheless, inflation is set to be lower than the Bank of England had been forecasting. The gradual pass through of previous interest rate rises and the rapid slowdown in the growth of the money supply mean that the risks will remain on the downside.
“The Bank should therefore reduce rates by at least a quarter point at the November MPC meeting. Indeed, a large package of tax rises in the October Budget could tip the balance towards a half point cut.”
Suren Thiru, Economics Director at ICAEW said “These figures provide reassurance that the UK has moved into a more moderate inflation environment, aided by lower fuel prices. September’s decline could be reversed this month, given the rise in energy bills following the increase in Ofgem’s energy price cap, which is likely to pull the headline rate back above the Bank of England’s 2% target.
“The notable drop in services inflation suggests that underlying price pressures are becoming less sticky. The squeeze from slower economic activity and weaker wage growth should help keep it on a downward trajectory.
“Though the stars are aligning for a November rate cut, the upcoming Budget is the final hurdle as rate setters will want to assess the inflationary impact of any measures announced before loosening policy again.”