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Inflation stable as cheaper food and clothing offset high fuel costs

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Inflation was unchanged at 2.4% last month as rising fuel costs and utility bills were offset by a fall in food and clothing prices.

Figures from the Office for National Statistics (ONS) show the Consumer Price Index measure of inflation stalled in October after dipping in September from a six-month high of 2.7% in August.

“Inflation is still above target, but tolerably so for the moment,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

“The effect of weaker sterling has faded, but rising fuel and energy prices have taken up the baton in keeping inflation elevated.”

The good news is wage growth excluding bonuses has inched up to 3.2%, its highest level since 2008, outstripping inflation by 0.8%.

“Despite today’s inflation reading, households are still benefiting from having a few extra pounds in their pockets. More money in the wallets and purses of workers means more money to spend, which should in theory give the British economy a boost,” said Ed Monk, associate director for Personal Investing at Fidelity International.

Experts expect inflation to slow further as we enter 2019, which will be good news for workers who will see their buying power improve if wage growth continues at the same rate.

“Inflation is likely to continue to slow in the coming months, reflecting a broader cooling of the economy since the summer, a stumbling housing market in London and the effects of the Bank of England’s interest rate increase in August,” said Mike Jakeman, senior economist at PwC.

“We expect inflation to slow to the central bank’s 2% target, and, for as long as this trend persists, would rule out another rate hike in the short term.”

Brexit effect

However, Brexit remains “the elephant in the room” when it comes to the future path of inflation, according to Khalaf.

“The pound now waxes and wanes with the Brexit negotiations, and that has a big impact on how much UK consumers pay for imported goods,” he said.

“A disorderly Brexit would see the pound fall and inflation rise, and if you believe Mark Carney, that could mean a rate hike or a cut.

“Meanwhile what the market sees as a positive Brexit deal will deliver a higher pound and lower inflation, and would most likely embolden the Bank of England to raise rates more aggressively.”


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