UK inflation slows more than expected in September to 2.4%. Good news, in that it helps relieve the squeeze on real incomes. Will it be enough to make the Bank of England hold off on further rate hikes? pic.twitter.com/7R0SyHMLST— Jamie McGeever (@ReutersJamie) October 17, 2018
Inflation in the UK fell last month from the six-month high of 2.7% in August, to the surprise of analysts. Many expected a slight decrease to 2.6%, but cheaper food and drink were accredited with the greater reduction of inflation.
The news comes a day after wage growth figures were released, showing that pay had risen by 3.1% in the three months to August compared to the same period in 2017. Andy Haldane of the Bank of England called it a “new dawn” for wage growth, but David Freeman of the ONS said “growth was much more subdued” when factoring in inflation.
Inflation drops to 2.4% from 2.7%. Yesterday wage growth hit a ten year high of 3.1%. This will go some way to unwinding the decade long incomes squeeze. @ONS— Kamal Ahmed (@bbckamal) October 17, 2018
The news of lower inflation and improving wages is welcome for the UK given the ongoing Brexit difficulties and the fact that the World Economic Forum (WEF) published their latest global competitiveness index today, with Britain falling from sixth to eighth place – overtaken by Hong Kong and Japan.
The WEF table is topped by the USA for the first time in 10 years and highlighted a significant reduction in Europe’s ability to compete with other major regions and continents, with Brexit and the potential loss of freedom of movement a large factor in their analysis.
Britain still remains fourth in Europe for rankings, behind Germany, Switzerland, and the Netherlands, but the WEF warned this position may not last if a no-deal Brexit goes occurs.
The EY Item Club, a non-government forecasting agency, also recently published their evaluation of the UK economy and determined that 2018 was the worst year financially since the 2008 recession.
The EY Item Club used the Treasury’s economic modelling tool to forecast growth of 1.3% - the poorest annual growth since the recession. The group cites the no-deal Brexit possibility as a major weight on investors and thus on UK prosperity, pointing to the zero growth in GDP for August and referencing that the IMF has already warned of “dire consequences” for British growth.
The chief economic adviser to the Item Club, Howard Archer, told reporters: “Heightened uncertainties in the run-up to and the aftermath of the UK’s exit could fuel business and consumer caution. This is a significant factor leading us to trim our GDP forecasts for 2018 and 2019.
“Should the UK leave the EU in March 2019 without any deal, the near-term growth outlook could be significantly weaker.”