Economics

UK inflation fails to rise but remains elevated

We may be close to the peak in inflation as the impact of sterling weakness should now start to fade.

14 November 2017

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

The Office for National Statistics has confirmed that the annual rate of consumer price index (CPI) inflation remained at 3% in October. This is below consensus expectations of 3.1%, and crucially, just below the trigger point for the Bank of England (BoE) to write a letter to the Chancellor of the Exchequer.

Cheaper fuel prices helped offset a rise in food prices, helping to keep the headline CPI rate unchanged. Excluding the volatile components, the core inflation rate was unchanged at 2.7%.

Meanwhile, annual inflation based on the retail price index (RPI) rose from 3.9% to 4%.

Impact of sterling weakness is fading

Overall, the latest inflation figures show that the depreciation in sterling is still causing prices to rise faster than in recent years. However, this appears to be close to an end. Data from producers show that both input and output prices peaked months ago, which should mean that we are close to a peak in CPI inflation.

Rising oil prices to squeeze households

With regards to monetary policy, while the Bank of England is not in a rush to raise interest rates again, the latest inflation figures are helpful for rate setters, especially if inflation now falls back towards the BoE's 2% target.

However, the rise in global oil prices in recent weeks could slow the fall in inflation which we are forecasting, and is likely to squeeze households further, keeping GDP growth subdued.

Important Information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.