Jane Imrie

“Fragile demand and falling prices do not make a happy mix": the business community reacts to latest ONS inflation figures

This morning the Office for National Statistics (ONS) revealed the latest UK inflation figures.

Data from the ONS shows a 0.4 per cent decrease in the inflation rate from October to November of this year.

Clothing and footwear, along with food and non-alcoholic beverages, all made downward contributions to the inflation rate.

Bdaily spoke with specialists and business leaders across the country to get their thoughts on the figures.

Ulas Akincilar, head of trading at online trading platform INFINOX

“England’s November lockdown slammed the brakes on the UK’s already faltering recovery and sent the economy skidding towards deflation.

“The prices of most of the goods and services tracked by the ONS fell during the month, and only the most rose-tinted observer could dismiss this as the result of temporary discounting for Black Friday.

“The pain is most acute among clothing and footwear retailers, who slashed prices by 2.6 per cent overall between October and November. During the same period last year, average prices rose by 1 per cent.

“Behind the desperate price cutting is an uncomfortable truth - consumer demand is reeling and business confidence is on the ropes.

“Fragile demand and falling prices do not make a happy mix. Consumers hold off on making purchases when they think prices might get cheaper in coming months. And the soaring numbers of newly unemployed Britons have even less reason to start spending again.

“December will now prove decisive, and the hope is that a Christmas boost in spending will help prices stabilise and veer the economy away from the insidious danger of deflation.

“So far the Bank of England’s barrage of monetary support has focused on propping up the economy and staving off an immediate collapse. But November’s rapid fall in inflation means the money taps also have a second purpose – to save the UK from slipping into a long and dangerous spiral of deflation.”

Laith Khalaf, financial analyst at AJ Bell

“Inflation dropped in November thanks to a Black Friday effect, with increased discounting by retailers pushing down the cost of clothing and footwear.

“Of course, Black Friday occurs every year, but this time around discounts were particularly steep in clothing sales, which led to an unseasonal fall in prices. That highlights the continued pressure on the retail sector, and while price cuts on the shelves are good for consumers, they don’t bode well for profits.

“We shouldn’t set too much store by one month’s inflation figure, particularly this time around when a second national lockdown meant the statisticians weren’t able to collect all of the usual data. However, the broader picture remains one of low inflation and that spells low interest rates for the foreseeable.

“We can expect inflation to tick up next spring, when the basis for comparison moves into the post-pandemic era and the big drop in fuel prices falls out of the equation in March, but that won’t be enough to persuade the Bank of England to tighten monetary policy.

“There are some economists who believe that the Bank’s money printing programme will let the inflation genie out of the bottle further on down the line.

“The central bank has plenty of room to tighten monetary policy to rein inflation back in, but that is still a nightmarish scenario because it would mean the Bank raising interest rates while the economy was still struggling to get to its feet.

“In the short term, a disorderly Brexit could be inflationary because it means a weaker pound and higher tariffs on imported goods. But that’s the kind of inflation the Bank of England will look through, as a one-off blip with no lasting power.

“Runaway inflation is a risk worth keeping an eye on, both domestically and internationally, but it is one that has failed to come home to roost throughout the last decade of ultra-loose monetary policy.

“That’s because there are also deflationary forces at work in the global economy, most notably technological advances and ageing populations in developed nations.

“On top of that, the economic damage of the pandemic means that many businesses won’t want to deter valuable customers by raising prices for some time to come.

“The government will also likely repair some of the hole in its finances through higher taxation, which will restrain consumers’ tolerance for price rises and in a highly digitalised marketplace, it’s easy to find a cheaper product to trade down to.

“Perhaps there will come a point when inflation does rear its head and cause central banks to pivot their policy. But for the time being low interest rates and loose monetary policy look like the only game in town.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown

“Black Friday has trampled inflation down to its lowest point since August - back when the government was giving away free lunches.

“Spreading the sales bonanza across half of November may have helped clear stock, but it also meant slashing prices at a time when retailers are normally taking advantage of the rush to buy party clothes.

“It has managed to push inflation below the rate on the most competitive easy access savings accounts, and below even the average fixed rate account – which the Bank of England puts at 0.53 per cent.

“However, savers can’t afford to get complacent. Inflation is set to bounce back, and the Office for Budget Responsibility expects it to be back near pre-pandemic levels next year - at around 1.2 per cent.

“If there’s no deal agreed on Brexit, this rise is likely to be faster and sharper. The OBR estimates that potential falls in the pound and tariffs on exports could push inflation to more than 2.5 per cent by the end of next year.

“We can’t afford to sit back and enjoy the odd month where we beat inflation, we need to do what we can to consistently stay ahead of price rises. This means shopping around for a better rate, and once you have 3-6 months’ worth of expenses in an easy access account, consider fixing the rest of your savings in order to lock in a better rate.

“If you’re planning to fix some of your savings, you need to act fast, before rates have a chance to fall any further. It can help to make the process as easy as possible, with a savings platform. These let you switch between accounts at different banks in a handful of clicks.”

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