UK Inflation rate remains at a five year high

November 20, 2017

UK inflation data for October remained steady at a five year high of 3%. Economists had been expecting an increase in the rate to 3.1%; however, lower fuel costs help offset higher food prices. The Bank of England (BOE) will now be hopeful that inflation has now peaked and will ease off over the coming months. This is of particular importance to the UK consumer, who have seen falling real wages. Furthermore, the lower inflation figure will reduce the pressure on the BOE to continue with a programme of increasing interest rates in the short term. However, with inflation and GDP growth increasing globally, there may be more external pressures on the UK inflation rate to come.

Hidden within the UK economic data released last week was a welcome increase in worker productivity. Productivity, measured as total output per hour worked, increased by 0.9% during the three months to September on the previous quarter. This increase was driven by both an increase in total output and a decrease in the total hours worked. The decrease in total hours worked is predominately as a result of a fall in the participation rate, the number of people working or looking for work. This is a change in the recent trend, although the overall level remains high relative to other developed markets. The lack of increases in worker productivity has been in particular focus following the financial crisis and is likely the primary reason behind the low levels of wage growth that have been seen.

The Norwegian sovereign wealth fund, the largest of its kind in the world, has signalled that it will look to come out of its oil and gas holdings. The rationale they have given is to increase the overall diversification of the country, which derives a large part of its income from its own oil and gas industry. However, many commentators have speculated that the fund has taken the opportunity to sell out of what they believe is a dying industry at a relative high in the oil price. This comes a couple of years after the fund elected to sell out of all of its holdings in the coal industry. Given the fund has over $1tn in assets, including 1.3% of global stocks and shares, its movements will inevitably have an impact on markets.

 

Index Open Close Change % Change
FTSE 100 7432 7380 -52 -0.70%
S&P 500 2582 2578 -4 -0.15%
Dax 13127 12993 -134 -1.02%
Cac 40 5380 5319 -61 -1.13%
Nikkei 225 22681 22396 -285 -1.26%
UK 10 Year Gilt Yield 1.34 1.3 -0.04 -2.99%

 

UK public sector borrowing figures for October will come out on Tuesday, preceding the budget announcement on Wednesday. Elsewhere, German Q3 GDP data will be released on Thursday.