UK INFLATION DIPS TO 1.6%

More encouraging news came from the Office for National Statistics (ONS) in mid August, as they announced that the Consumer Prices Index (CPI) had dropped to 1.6% in July from the 1.9% recorded in the previous month. This continues the trend of below 2% inflation throughout 2014, much to the pleasur e of the Bank of England (BoE).

The ONS cited a fall in the price of clothing, probably as a result of retailers extending their sales period to attract consumers, and both non-alcoholic and alcoholic drinks, particularly spirits and New
World wines. There was also a reported drop in the prices of financial services, with some major banks dropping their overdraft rates. Food sales also saw a price fall overall. Food is now 0.4% cheaper than in the same month last year including syrups, jam, sugar, chocolate and confectionery.

Finally, petrol and diesel fuel also saw a decline in price. Currently the average price of a litre of petrol is £1.31, against a price of £1.35 seen at the same time last year.

Whilst good news for the economy, it is not such good news for savers, as they will now need to find a home for their non-ISA savings paying at least 2% (or 2.67% for higher-rate tax payers) to counter the effects of both tax and inflation on their savings.

Meanwhile, the wider Retail Prices Index (RPI) remained static at 2.5%. This is a more closely followed statistic, as many other prices are measured against it, including train fares. The Government has stated that the train operating companies can increase next year’s prices by the RPI rate calculated in July of each year, plus an average of 1%, with flexibility within that for some fares to rise a further 2%. Therefore, some commuters could see their tickets rise by up to 5.5%; well above
the current inflation rate.

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Inflation is on the agenda again and again

Enable's Independent Financial Advisors know you have to feel like you can afford to save before it easy to have a savings or investment plan in place. At the beginning of the month The Bank of England’s Monetary Policy Committee once again voted to keep the base rate at 0.5 per this was for the 63rd consecutive month of record-low rates. But with many families struggling with the cost of things going up while wages do not keep pace something might have to change.

It would seem that according to a survey of 4,000 households that was conducted as part of the B of E’s latest quarterly report 58 per cent of households would actually prefer the central bank to keep inflation down through higher interest rates.  This is a significantly larger group that the just 14 per cent of households that preferred to keep interest rates low and accept higher inflation, despite 67 per cent of borrowers being on their lender’s standard variable rate.

The Bank is aiming to keep inflation at 2 per cent and says: “There is evidence of public support for the Bank’s objective of maintaining low and stable inflation remains strong.”

Back in February, there was much speculation but it seemed like rates would not be changed until spring next year - which would amount to six years of the central bank holding the benchmark rate to a record-low 0.5 per cent - although after Mark Carney’s more recent warning some commentators suggested rates could rise before the end of this year.


Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE

Inflation remains static...

The Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) remained at 2.8% in March; however, this is the highest level it has reached since May 2012.

They stated that whilst car insurance premiums, digital cameras, DVDs, and books, saw an increase in price in the month, these were offset by lower petrol and diesel fuel costs. Here petrol prices only rose by 2.2p a litre, whereas last year saw an increase of 3.3p a litre. Likewise, diesel prices rose by 1.9p a litre against a rise of 2.6p a year earlier.

Other factors were a slower increase in the price of furniture and a fall of 0.5% in the price of tobacco and alcoholic drinks.

Their report did, however, add that they saw a reduction in producer prices, with factory gate inflation rising by only 2%, which is the lowest level since July last year. This was mainly due to the largest annual fall in crude oil prices over that same period.

Meanwhile, the Bank of England stated that they believed UK inflation will go higher than 3% before the end of this year, due to a global increase in food prices and an anticipated increase in the domestic cost of gas and electricity.

They added that their forecasts saw inflation remaining above the officially targeted 2% until at least 2016.

It has now been above this level since 2009. With the CPI sitting at 2.8%, consumers’ spending power continues to be diminished, as the growth in average earnings is only 1.3%, which continues to dampen consumer demand.

Looking forward, there is hope that inflationary pressures will ease, as Brent Crude oil dipped below $100 a barrel this month. This is reflected in a reduction of about 2.5p in the price of a litre of unleaded petrol and supermarkets have reignited a price war at the pumps to try to attract motorists to their stores.


Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE.

No change on inflation front...

Whilst stubbornly remaining above the Bank of England’s target level of 2%, which has been the case since November 2009, the UK Consumer Prices Index (CPI) remained at 2.7% in December for the third month in a row.

Figures released by the Office for National Statistics (ONS) cited an increase in both gas and electricity prices as the culprit, with gas rising by 3.9% and electricity by 5.2% compared to the same month in 2011. Also non-alcoholic drink and food prices rose by 3.8%. However, these rises were offset by a fall in air travel costs, down by 6.8%, and motor fuel, which fell by 0.2%.

Commenting on these figures, Phil Gooding, of the ONS was quoted as saying:”By far the largest upward effect comes from domestic gas and electricity. Here we saw the majority of the pre-announced price increases coming into the index for December.”

Responding to the disappointing data, the UK Treasury pointed out that inflation has nearly halved from its recent peak of 5.2% and that the government has helped households by increasing tax-free personal allowances and stopping the planned fuel duty increase that had been expected in January.

Meanwhile, the Retail Prices Index (RPI), which includes housing costs, increased slightly to 3.1% from its previous level of 3%. Compounding the effect this inflation has on the average household, pay growth remains stunted, as this is the fourth year in a row that the growth in pay has remained below the headline inflation rate.

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Services Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Shop Price Inflation Slows...

Good news as inflation slowed in September from 1.1% in August, however food inflation remained unchanged at 3.1% in September, according to the British Retail Consortium.

Stephen Robertson, BRC Director General, stated “Falling prices for non-food goods and stable food inflation are slowing overall shop price rises.

“Food inflation remains at a two-year low for the third month running despite inflationary pressures building up in the supply chain from rises in global commodities such as wheat and soya beans.”

“These shop price figures show retailers are holding back much of the impact as they battle it out for every bit of spending available from hard-up customers. Promotions, including multi-buy offers, fuel coupons and price matching are commonplace and helping to keep grocery bills down while non-food prices have now been cheaper than a year ago for eight months in a row as prices of furniture, electricals and clothing are cut to generate sales.”

Inflation dipped in August

Inflation dipped in August continuing a positive trend, UK price rises were trimmed in August, compared to the previous month, according to the Office for National Statistics (ONS).

Both the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) – which also includes housing costs – measures fell during the month, with the CPI change dipping to 2.5% in August, against 2.6% recorded in the previous month and the RPI movement showing a drop to 2.9% from 3.2% in July.

The ONS stated that factors behind the fall in the CPI were smaller rises in gas prices and furniture costs. Whilst reporting this data, the ONS also said that they will be consulting on possible changes to their RPI calculation methods between the 8th of October and the 30th of November this year.

Given that CPI inflation peaked at 5.2% in September 2011, these new figures are good news for consumers, the Bank of England, who have been set a target of 2%, and the Government. The expected drop in demand in the UK economy should result in inflation continuing to decline towards this 2% target in the short term.

This said, the ONS did warn that there remain a few factors that may put upward pressure on prices. Mr Richard Campbell, an ONS director, was quoted as saying:

“Some of the utility companies are talking about price increases in the next few months, while there have been reports of poor harvests in many parts of the world, which could possibly have an impact on food prices.

“Finally, if the oil price continues to go up, we expect that to feed through to petrol and diesel prices.”

With the UK economy having contracted over the past three quarters and the Bank of England’s additional Quantitative Easing (QE) programme worrying analysts that it would stoke inflationary pressure, these lower CPI and RPI figures eased their concerns in this regard.

Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future.

It is not intended that individual investment decisions should be taken based on this information; we are always ready to discuss your individual requirements.

Inflation continues to fall ...

Continuing on the good news front, the Office for National Statistics (ONS) has reported the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) inflation rates fell in June to 2.4% and 2.8% respectively.

This represents the slowest rate of increase in UK prices since the latter half of 2009 and the third month in a row that the rate of increase in CPI has fallen.

Reasons behind this decrease were a drop in clothing and footwear costs - with a reduction of 4.2% seen in these sectors - probably due to retailers bringing forward their summer sale promotions.

Whilst a drop in prices here was anticipated, due to aggressive price reductions by those retailers, a fall of this scale was not forecast.

We also saw a reduction in alcohol and transport costs, which were down by 0.5% and food prices, particularly meat, down by 0.1%. The ONS cited the lack of domestic barbecues, due to the inclement ‘summer’ weather we have experienced as one reason for this decline.

Fuel costs were an important element of this overall reduction, with petrol seeing a fall of 4.3 pence per litre, to an average price of £1.33 a litre and diesel falling 4.7 pence to an average of £1.39 a litre.

Echoing this good news, Neil Saunders, retail analyst at Columino stated: “However, if inflation continues to drop back at this pace, wage settlements will outstrip inflationary growth by the fourth quarter, meaning we will see a return to growth in real disposable income.”

With regard to the reduction in fuel costs, he went on to say: “This has benefited most households although, in our view, it will take time for this to drive tangible changes in behaviour in terms of shopping and spending habits.”

Representing a welcome continuing decline in inflationary pressure and a move nearer to the Bank of England’s CPI target rate of 2%, these latest figures will reassure the Bank that its Quantitative Easing (QE) programme (totaling £375bn so far) has not stoked the inflationary fires in the UK economy as some members of the bank’s Monetary Policy Committee

A mixed forecast predicted for the UK economy...

The Ernst & Young Item Club, which is one of the most respected independent economic forecasting groups that uses the same economic model as the UK’s Office for Budget Responsibility (OBR) and The Treasury, has good news in its latest quarterly forecast for the UK economy.

They believe - although the latest GDP figures (released on July 25th) for Q2 paint a far gloomier picture and some forecasters are much less positive - that it will enjoy an “Indian summer” following its dire performance in the first half of the year.

Whilst they predict the rate of inflation to continue to decline to 1.7% by year-end and see growth for the whole of 2012 remaining flat, they go on to forecast growth in 2013 to reach 1.6% and by the end of 2014 to see a rate of 2.6%.

In addition, real disposable incomes should rise by 0.4% in 2012 and in 2013 by 1.5%.

The chief economic adviser to the Item Club, Peter Spencer, was quoted as saying: “Spiralling inflation has cut real wages by 7.5% over the last four years, but the squeeze is almost over.

“Inflation is now coming back to heel, helped by the Chancellor’s decision to postpone the increase in fuel duty, falling energy and commodity prices, plus tax changes dropping out of the calculation.”

It is widely believed that any growth in the UK economy will be export-led, as most households appear determined to pay down personal debt, rather than to consume goods.

Having said this, UK unemployment will remain high, possibly reaching 8.6% by the end of 2012 and increasing to 8.7% in 2013.

On the positive side, the report believes that business spending will increase by 3.4% in 2012, although it is unlikely to reach the levels achieved pre-recession till at least 2015.

Mr Spencer went on to conclude: “However, a resolution of uncertainty about the euro could transform the outlook, pushing company spending up much faster than forecast.”