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UK inflation predicted to hit two-year low

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UK Inflation Drops to Two-Year Low, Relieving Cost of Living Squeeze

Inflation in the UK is expected to have fallen sharply last month, offering some relief to the cost of living squeeze experienced by British households. The Consumer Price Index (CPI) inflation rate is predicted to drop to around 4.8% in the year to October, down from 6.7% in both September and August, according to economists. This decline in the speed of price rises would allow Chancellor Rishi Sunak to claim victory in his promise to halve inflation this year, as the CPI stood at 10.7% when he made the pledge.

While Sunak may take credit for this improvement, much of the praise should be directed towards energy regulator Ofgem. The organization recently reduced the maximum price that energy suppliers can charge for power, leading to a decrease in average household energy bills last month. This move has significantly contributed to the anticipated drop in inflation.

The easing of food price pressures may have also played a role in lowering inflation. Kantar, a data provider, reported last week that grocery inflation has fallen to single digits for the first time in a year and a half. These combined factors have created a favorable environment for a slowdown in inflation.

Sanjay Raja, chief UK economist for Deutsche Bank, predicts a significant change in the UK inflation landscape, with headline inflation expected to drop further today. Raja told clients that “more disinflation pressure is building,” and Deutsche Bank forecasts a drop to “closer to 3%” by April of next year.

A substantial decline in inflation would be welcomed by the Bank of England (BoE), where policymakers are striving to bring price rises in line with their 2% target. Financial markets already anticipate that the BoE will maintain interest rates at 5.25% until next spring, with many economists projecting a cut to 5% in May 2024.

However, it is important to note that inflation remains lower in other advanced economies. Yesterday, the US reported a higher-than-expected decline in inflation, with the rate dropping to just 3.2% in the year to October, down from 3.7% in September. This news sparked a strong rally on Wall Street.

Overall, the anticipated drop in inflation in the UK offers a glimmer of hope for British households. If the predictions hold true, it will provide some relief from the burden of rising living costs. The government and energy regulator’s efforts to tackle energy prices have played a significant role in driving this improvement. As the UK economy moves forward, attention will remain focused on achieving the desired inflation target set by the BoE and maintaining financial stability for the general public.

More detail via The Guardian here… ( Image via The Guardian )

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