October 2024
Market Commentary
Inflation Progress
(2 min read)
17th October 2024
Yesterday’s UK inflation data for September fell to 1.7% year on year (Chart 1) from a previous level of 2.2%, below the Bank of England’s (BoE) 2% target rate and lower than the consensus forecast of 1.9%. This was primarily driven by falls in transport prices, air fares and motor fuels driven by lower oil prices (Chart 2).
This will be of considerable relief to the BoE as it will give greater credence to the prospect of an interest rate cut when the committee meets in early November, following the Budget on 30th October. Pay awards in recent months have been generous, particularly in the public sector, and falling inflation back to levels seen before Russia’s invasion of Ukraine will further improve consumer balance sheets and, in turn, consumer confidence.
A slight word of caution for the BoE when it decides on setting interest rates is that service sector inflation remains elevated at 4.9% and wage growth is sticky. Any escalation in the Middle East could see a rise in food and energy prices and therefore an increase in the overall level of inflation.
On the macro headlines that we hear and read daily the news is unsettling: wars on two fronts in Europe and the Middle East, concerns about when China will recover from its property bubble and can policy makers get the economy going, huge government deficits in the developed world leaving little room for fiscal expansion, not to mention the vacuum created by a four month wait for the UK Chancellor’s budget, and uncertainty surrounding the upcoming US election. The markets have had to digest these issues for some time and have taken these headwinds in their stride. The good news is that while the global economy is, what economists call, ‘late cycle’ it is fundamentally in good shape supported by strong corporate and consumer balance sheets.
What does this mean for me? On behalf of our clients, we continue to be sensitive to future market volatility and consequently remain diversified across the different asset classes, geographies, sectors, and styles to try and make the journey less bumpy.
Peter Geikie-Cobb | Head of Investment Research
Montgomery Associates
Chart 1: UK Inflation Rate (%) 2020-2024
Chart 2: Crude Oil Price ($) 2020-2024
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