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U.K.’s headline inflation accelerates in October, likely to remain below 1 pct until Q1 2021
U.K.’s headline inflation accelerated surprisingly in the month of October. The consumer price inflation came in at 0.7 percent year-on-year, an acceleration from September’s 0.5 percent. Upward influences were seen throughout several categories in the inflation basket where prices either rose by more between September and October, or dropped by less, relative to 2019.
Markedly, clothing prices were up 2.8 percent sequentially in October, compared to a 0.9 percent sequential rise seen in the prior year, while furniture prices dropped 1.1 percent sequentially. Meanwhile, food prices rose 0.1 percent in the month, as compared with a decline of 0.7 percent in October 2019.
These offset downward contributions from recreational and culture items, where package holiday prices dropped 0.5 percent as compared to a 0.6 percent rise last October, possibly reflecting reduced demand for foreign holidays, noted Lloyds Bank in a research report.
In spite of the acceleration in inflation in October, the headline rate continues to remain below the central bank’s 2 percent target as mandated by the U.K. government.
“While the latest inflation print was also a little higher than the Bank of England expected, the outturn is unlikely to alter the MPC’s latest thinking around the need for additional stimulus. The outlook is still only consistent with a gradual uptrend, with the headline rate of CPI likely to remain below 1 percent until Q1. After which, we expect the temporary cut in VAT for the hospitality sector to unwind and push CPI inflation back above the 1 percent mark, but for it to remain well below the 2 percent target until around the end of 2022/early 2023”, added Lloyds Bank.
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