Clothing, food and furniture push UK inflation up to 0.7%

Price rises for clothing, food and furniture pushed up UK inflation slightly in October although it remains at a historically low level, according to official figures.

Data from the Office for National Statistics released on Wednesday showed consumer prices rose 0.7 per cent year on year in October, up from a 0.5 per cent increase the previous month.

The rise was driven largely by clothing prices — which rose 2.8 per cent from September compared with 0.9 per cent the previous year — as well as food and furnishings. Prices fell, however, for holiday sales and in some transport sectors such as coach fares.

Inflation has been on a downward trend for the past two years and dropped at a faster rate as the coronavirus lockdown wrought havoc across the global economy.

Despite expanding at a record pace as businesses reopened this autumn, UK unemployment was 4.8 per cent in the third quarter of 2020, and gross domestic product was 9.7 per cent smaller than in the last quarter of 2019. 

Economists said inflation was likely to remain low given the weakened economic outlook, despite surpassing predictions this month.

“October’s inflation figures have come in slightly above expectations. Yet they reflect a disinflationary environment, given the current backdrop of weak wage growth, rising unemployment and abundant spare capacity,” Debapratim De, senior economist at advisory firm Deloitte, said. 

“Inflation is likely to remain subdued until the economy regains most of the lost activity due to the pandemic.”

The pandemic has upended some established consumer habits. In normal years, for example, clothing tends to fall in price during summer and autumn sales, but this year prices increased in the warmer months and again in October as consumers and retailers responded to changing lockdown restrictions rather than seasonal shifts.

Samuel Tombs, chief UK economist at consultancy Pantheon Economics, noted second-hand car price inflation also soared in October as consumers sought to avoid public transport, but said prices would likely stabilise then drop as a vaccine becomes available.

Government interventions have also shifted prices in unusual ways. In August, inflation reached a four-year low thanks in part to the government’s Eat Out to Help Out scheme, which offered half-price meals at restaurants, then rose again after the month-long offer was withdrawn. Restaurants and hotels last month continued to put downward pressure on inflation due to a temporary reduction in value added tax.

Paul Dales, chief UK economist at consultancy Capital Economics, said the increase of the last two months showed inflation was “well past its low point” but would probably not increase far beyond the Bank of England’s 2 per cent target during 2021.

“Even if Covid-19 vaccines are widespread by then, we suspect that a lot of economic slack will prevent inflation spending much time above the 2 per cent target,” he said.

“The exception is if there were any type of no-deal Brexit at the end of this year. In that case, the boost to imported inflation from a weaker pound could temporarily push up inflation to somewhere between 3 per cent and 4 per cent.”

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