Inflation Ticks Up to 0.70% pa But Not For Long

Published / Last Updated on 18/11/2020

The Office for National Statistics (ONS) has reported today that the UK’s inflation rate, which tracks the prices of goods and services went up in October 2020 to 0.7% pa from 0.5% pa in September.

Analysts had expected the rate to stay at 0.5% pa but rises in the cost of clothing and food (mainly fruit and vegetables) helped push the rate up.  There were also price rises in second-hand cars and computer games, but these were offset by falls in the cost of holidays and energy.

Jonathan Athow deputy statistician for the ONS said: “the inflation rate increased slightly as clothes prices grew and then returned to the normal seasonal pattern after this year’s disruption”.

The ONS said: “Between June and July clothes and shoes normally fall each year in summer sales, before the autumn ranges come in and then rise again towards the end of the year before the sales”.

For 2020 the pattern for inflation is skewed due to changed spending patterns and demans during the coronavirus crisis.  If we look back to the March and April lockdown period there was increased discounting on goods and services and then increase costs in July and August as we moved out of lockdown.

October also saw a rise in second-hand car prices as people tried to reduce their reliance on public transport and may stabilise and fall back in the middle of 2021.

One of the largest downward pressures on inflation came from household energy prices where September and October saw gas prices fell by 12.3% and electricity prices fell 3.2%.  The ONS said: “This was mainly due to Ofgem’s the energy regulator’s 6-month energy price cap that came into effect 1st October 2020.


Interestingly, the old measure for inflation, Retail Prices Index went up to 1.3% pa fro, 1.1% pa.  This is still a general trend upwards but given that we are in a second lockdown period, it is possible the inflation, both CPI and RPI may fall back in November's figures.

A fall in inflation for November may lead to an interest rate cut in January 2021 or it could even by December 2020 given that the Monetary Policy Committee (MPC) meets on 17th December just after the ONS Inflation Report on 16th December.

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