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Please see the below article from Evelyn Investment Partners detailing their thoughts on the UK inflation announcement for October. Received this morning 15/11/2023.

What happened?

UK October annual headline CPI inflation was reported at 4.6% (Bloomberg consensus: 4.7%), its lowest pace in 2 years, versus 6.7% in September. In monthly terms, CPI was flat (consensus: +0.1%), compared to a rise of 0.5% in September.

What does it mean?

The downward trend in inflation is continuing following this CPI print. A year on from headline CPI of 11.1% in October 2022, it has since decelerated by over 6% points, with much of that deceleration coming from lower energy prices in the transport (i.e. fuel) and housing and household services (i.e. gas and electricity) categories.

As it stands, Brent crude oil prices are now down slightly for the year despite heightened geopolitical risk in the Middle East and OPEC+ output cuts. This reduces the risk of upside in retail petrol and diesel fuel prices.

Moreover, the drop of the Ofgem regulator price cap has been another driver of lower CPI inflation. The further good news for households is that wholesale natural gas prices have remained low although peak winter demand has yet to come. For the moment, there is no evidence of a sharp acceleration in natural gas (or electricity) prices that could impact future inflation data.

Today’s CPI figure supports the narrative that we have reached the end of the BoE’s rate hike cycle with the base rate at 5.25%. There is conflicting opinion within the Bank of England (BoE) Monetary Policy Committee as to when rate cuts will occur, with the BoE Chief Economist, Huw Pill, hinting at rate cuts sooner than expected. However, BoE governor, Andrew Bailey, downplayed these comments and reiterated the need to reduce inflation to the target level of 2%. The futures’ market expects base rate cuts around the second quarter of 2024.

Bottom Line

The broader trend of inflation deceleration is continuing with the aid of lower energy prices. This suggests that we have peaked in interest rates and that cuts are to be expected in 2024.

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Alex Clare