UK inflation nudges down to 0.9%

In the year to October inflation in the UK, as measured by the Consumer Prices Index, fell to 0.9%; what impact will this have on your investments?

UK inflation nudges down to 0.9%

Despite the Bank of England’s forecast that inflation would hit 2.7% by the end of 2017, October’s data showed it was actually lower than last month’s figure of 1.0% and, more significantly, lower than the 1.1% widely forecast by the market.

“The price of clothing and some games and toys rose less than last year but were offset partially by a rise in the cost of fuel and furniture,” said Ian Forrest, investment research analyst at The Share Centre.

“The fall in inflation is a contrast to the Bank of England’s recent forecast that inflation will rise to 2.7% by the end of next year, although the ONS did report today that producer input inflation rose 12.2% in October, up from 7.3% in September.

“That last piece of data confirms the widely held expectation that the fall in Sterling is having a notable impact and so it remains highly likely that consumer inflation will rise over the next few months.”

Tom Stevenson, investment director for personal investing at Fidelity International, also believes that inflation will rise over the long term: “Consumers can expect UK inflation to continue rising into next year as the impact of the pound’s slide continues to be felt. The conventional wisdom is that the Bank of England’s 2% inflation target will be left behind in 2017.

“Higher inflation means the pound in your pocket won’t stretch as far and many will be thinking how they can make their money work harder. There is little evidence so far that rising inflation will translate into higher interest rates, so anyone with savings still sitting in cash will struggle to generate real returns.

“To stand any chance of achieving an inflation-adjusted real return they’ll need to look further up the risk spectrum, investing in bonds issued by companies rather than the Government or moving into stocks and shares.

“If anyone is unsure about the benefits of investing in the stock market over stashing cash under the mattress, our calculations show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £55,219. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £20,027. That’s a difference of £35,129 – far too big for anyone to ignore.”

 

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