By Ian McConnell
Business Editor
ANNUAL UK inflation edged higher last month as prices of food, and clothing and footwear rose, but it remained way adrift of the Bank of England’s target, and economists expect it to stay contained in the near term.
Data published yesterday by the Office for National Statistics showed annual UK consumer prices index inflation rose by slightly more than expected from 0.5 per cent in September to 0.7% last month, remaining far below the 2% target set for the Bank by the Treasury.
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Clothing and footwear prices rose by more this October than in the same month of last year. Food prices increased this October, having fallen in the same month of last year, with the cost of vegetables and fruit exerting upward pressure on inflation.
Laith Khalaf, financial analyst at stockbroker AJ Bell, said: “CPI is slowly making a comeback, but it’s still way below the Bank of England’s 2% target. Inflation isn’t just a measure of prices in the here and now, but also one year ago. More substantial gains can therefore be expected as we head into spring, as the baseline for comparison moves into the post-pandemic era.
“The current lockdown may create some short-term volatility in the number, but the overall picture is one of low, gradually rising inflation. The economic damage of the pandemic means that many businesses won’t want to deter valuable customers by raising prices for some time to come.”
Mulling the extent of longer-term inflationary pressures given huge economic support measures implemented amid the pandemic, Mr Khalaf added: “There is a legitimate question of whether all the fiscal and monetary stimulus thrown at the pandemic will create inflationary pressures further down the line. When confidence returns, we could see businesses looking to recoup losses by pushing through price rises. While the pandemic has cost some their livelihoods, we know that many people have actually seen a boost to their finances from enforced frugality, allowing them to afford price increases in future.”
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However, he believes that “for the foreseeable future…inflation looks well-contained, putting little pressure on the Bank of England to raise rates any time soon.”
He added: “Indeed monetary policy may yet loosen before it tightens again, though the curative economic potential of vaccines may persuade the central bank to stay the course until the science hopefully comes to the rescue.”
Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “The EY ITEM Club expects consumer price inflation to hover close to 0.5% throughout the rest of 2020 and early 2021 before starting to trend up gradually.
He added: “Inflation is unlikely to rise quickly and could be around 2% by the end of 2021.”
The EY ITEM Club said: “At 0.7%, inflation is still low and will help consumers’ purchasing power amid rising unemployment and the prospect of limited pay increases.”
UK base rates were cut to a record low of 0.1% in the spring, as the coronavirus pandemic hit.
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