Good news for equity investors as UK inflation figures release

National Statistics announce that inflation has fallen to lower than expected.

Article updated: 17 October 2018 9:00am Author: Helal Miah

  • UK inflation rate fell more than expected in September to 2.4%, down from 2.7%
  • The fall was largely driven by lower prices for food and non-alcoholic drinks
  • A positive environment for the consumer following yesterday’s unemployment data which showed a pickup in wage growth as real income growth continues to expand and wage rises are not hitting inflation

We have had a slightly surprising set of September inflation data this morning as price rises slowed down after hitting a six-month high in August. While the market had anticipated the month-on-month figure for September to come in at +0.3%, the result came in at just 0.1%, falling way short of August’s +0.7%. The year-on-year growth rate also fell short of expectations at 2.4% compared to 2.7% in August.

The fall was largely driven from food and non-alcoholic beverages while transport, recreation and clothing also made a downward impact. Energy prices counteracted this somewhat.

This in contrast to the latest set of unemployment data released yesterday which showed wage growth had continued to steadily pickup. This is good news for the UK consumer meaning that real income growth continued to expand. More importantly, it means that wage rises are not yet hitting inflation leaving the MPC with more room for manoeuvre in deciding when next to raise interest rates. Upon the release we saw an immediate pullback in sterling as the market deems that the pace of rate rises could now be even slower.

The slower pace of rate rises will be welcomed by equity investors especially when there is so much political and economic uncertainty caused by Brexit and other geopolitical themes. The slower pace of rate rises should also mean that equity returns are still likely to be superior on a risk adjusted basis than cash, which is one of the mains reasons why we still believe that investors should still have shares as a significant part of their portfolios.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment. 

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