Inflation Slight Rise in October

Inflation Slight Rise in October.

The Office for National Statistics (ONS) has released figures for October 2014 with an unexpected marginal increase in UK inflation, up 0.3% to 1.3% pa.

This is still below the government's trend growth target of 2.5% pa.

The general fall in inflation to around the 1% has been driven by falling commodities costs such as Oil and other raw materials and food.

That said, it raises concerns that the UK may be moving towards negative growth i.e. deflation, which is bad for the economy, just like Japan has now moved to deflation.

On a positive side, earnings are now rising faster than inflation, meaning that we are all wealthier which will improve spending and drive inflation back up.

What this has also done ie reduce the risk of a Bank of England base interest rate rise in the New Year, prompting stock markets to rise as businesses will still be able to borrow at cheaper rates and grow with a reduced risk of interest rate increases.

For pensioners, this is not good news, lower inflation means low interest rates on savings and lower pension in payment increases.

Comment

We have maintained our position that we predict no interest rises until after the general election in May.  Low inflation will reduce pressure on the Bank of England to increase interest rates.

Europe is slowing down, yet the planned economic and financial stimulus in Europe, will drive Euro activity up, which will spread to UK.

We expect the same volatility in stock markets as investors react to positive and negative news.  Inflation will fall again in November we predict and then gradually increase in the New Year.