UK Inflation Highest since April 2012
Increases in transport and costs and food prices drove the UK CPI (Consumer Price Index) to 3%, putting it at a five year high and 0.9% above the rate of wage growth, implying a further tightening of the ‘income squeeze’. Those working in the public sector (with pay rises capped at 1%) and benefits (where levels have been frozen), will feel this even more severely. The CPI level is also significant since state pension payments from April 2018 will rise in line with this September’s figure. However, Business rates will go up by the September RPI (Retail Price Index) of 3.9%. The inflation rise is partly driven by Brexit as the fall in the pound has made imported goods more expensive.
The inflation numbers mean the Bank of England’s monetary policy committee decision on whether to raise interest rates will be finely balanced. While a rise is broadly expected, possibly as soon as next month, the committee has to factor their goal of ‘price stability’ (preventing inflation) against poor economic growth and a belief that inflation may well have peaked now, as the effects of the pound’s fall following the Brexit referendum fall away. Nonetheless, the City consensus view remains that interest rates will have to rise from a record low of 0.25%.
Unemployment figures have underlined the state of the UK economy since a drop in joblessness by 52,000 over the three months to August has failed to prevent wages from falling behind inflation. This is despite unemployment being at its lowest level since 1975.
Markets remain seemingly optimistic with Bill McNabb, chairman of Vanguard voicing concerns about record highs and suggesting that there could be a ‘decent-sized correction at some point’. Meanwhile, UK listed companies have paid out a record £94 billion in dividends this year, and the Japanese Nikkei has hit the highest level since 1996 after Shinzo Abe’s election victory.
Elsewhere in the world, plenty of issues remain, with concerns in Europe over Catalonia’s moves towards independence, while two Italian regions (Lombardy and Veneto) have voted for more autonomy. Concerns about North Korea remain, and part of re-elected Japanese Prime Minister Shinzo Abe’s appeal may have been his promise of strong counter-measures against Pyongyang.
Climate issues are also apparent, with scientists saying that increased atmospheric carbon dioxide levels, apart from generating global warming, are causing the oceans to become more acidic. Evidence suggests that infant sea creatures could be harmed with far fewer growing to maturity, for example, the numbers of baby cod reaching adulthood could fall to a quarter or even one-twelfth of today’s figures.
|UK 10 Year Gilt Yield||1.364||1.38||0.016||1.17%|