Please see the below article from EPIC Investment Partners received this morning 28/11/2023.
The Daily Update | UK Shop Inflation Falls, However Wider Inflation Becoming More Home Grown
Inflation in UK shops has fallen to its lowest level since June 2022 as retailers fight to attract shoppers ahead of the crucial Christmas period.
Figures out this morning from the British Retail Consortium showed inflation fell 0.9% in November to 4.3%, a 17-month low, versus the previous reading of 5.2%. It’s the sixth-straight month that the trade association has recorded declines. Clearly the BoE’s tightening cycle is working, with inflation now less than half May 2023’s reading, of 9%.
We maintain, however, that the hardest part is the journey from ~4% to 2% target. To this effect, the lobby group said there was no guarantee that inflation would keep falling, with higher taxes and an increase in the minimum wage pushing up costs.
The lower shop inflation comes as the Old Lady’s Deputy Governor Dave Ramsden warned that UK inflation is becoming more “homegrown” and will be “challenging to squeeze out of the system”. Speaking to Bloomberg TV, Ramsden believes that monetary policy will need to stay “restrictive for an extended period of time” to bring inflation down from 4.6% to the BoE’s target.
Although headline inflation is now less than half of what it was 12-months ago, this was mainly “driven down by a bigger fall in the energy component than we were expecting”. Services inflation, which makes up 45% of the consumer basket used to calculate the CPI inflation number, was “actually much stickier and higher than we were expecting at 6.6%.”
“That’s really a sign that UK inflation is becoming much more home-grown,” Ramsden said. He added: “We think that inflation is going to be really challenging to squeeze out of the system. It’s driven by wages, where wage growth remains above 7%. The service sector in the UK is very labour-intensive. So, these factors are what’s leading us to think that inflation is going to stay stubbornly high through next year.”
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Charlotte Clarke
28/11/2023