UK inflation jumps to 1% in July from 0.6%: reactions from the business community

UK inflation has risen to 1 per cent as the country emerges from the lockdown imposed due to the COVID-19 pandemic.

The Consumer Price Index (CPI) rate of inflation went up 0.4 per cent last month, alongside the easing of lockdown restrictions.

Business leaders and specialists across the UK spoke to Bdaily about the rise and what it means for consumers, SMEs and the economy as a whole.

Richard Berry, founder of goodmoneyguide.com

“British retailers fighting for survival might not feel it yet, but consumer demand is spluttering back into life and starting to drive up prices.

“With many high street names slashing both jobs and prices in a desperate attempt to cut costs and lure back customers, the news that the UK has dodged the deflationary bullet will be welcome.

“But no-one should confuse July’s surge in inflation with a return to rude economic health. The prospects of British consumers spending their way out of recession still look slim.

“Much of the surprise jump in inflationary momentum is down to rising oil prices and the Bank of England’s vast programme of monetary stimulus, rather than a rekindling of consumer confidence.

“Nevertheless the implications for the Bank are significant. Its splurge of money-printing, though primarily designed to prop up Britain’s shrinking economy, is also having a welcome side-effect – keeping deflation at bay.

“As a result the Bank is likely to shrug off calls for it to take the drastic step of following the European Central Bank’s lead and driving UK interest rates into negative territory.

“This is good news for savers, who were facing the prospect of seeing already rock-bottom rates of interest wiped out entirely.

“And it is also likely to reinvigorate the pound, which has been on a roll against both the euro and the dollar since the start of this week and is now capitalising further on those gains.”

Laura Suter, personal finance analyst at investment platform AJ Bell

“Despite the Bank of England predicting inflation would fall to near zero this year as a result of COVID-19, the rate has leapt this summer from 0.6 per cent in June to 1 per cent in July. Rising fuel prices, following the oil price slump earlier this year, have helped to push prices up.

“What’s more, the lack of summer sales on the high street mean that clothing and footwear is less discounted than it was last summer, helping to push up prices in comparison to last year. Lockdown and the current pandemic has trampled over the usual seasons that clothing shops operate under, affecting prices.

“The cost of haircuts has risen as the public rushed to re-opening salons to get their lockdown hair fixed, with the cost of the additional PPE and a reduction in customers to respect social distancing likely to have driven much of the price rises.

“Other factors that helped to push prices up were a small increase in the cost of private dental and physiotherapy services, as people emerged from lockdown and urgently needed to see medical experts. There was also a small increase in the cost of booze, after pubs re-opened and people went out more to enjoy the hot weather.

“The rise in inflation is another blow for savers who have been hit with successive cuts to interest rates since the start of the year. The only saving grace was that inflation was lower, meaning that getting a real return on their money was at least possible with the top-paying accounts. Now just one easy-access account pays more than inflation, NS&I’s Income Bonds, and that is only open to those with £500 or more to save.”

Karim Yousfi, chief global strategist at Audacity Capital

“Sterling is riding high after receiving a surprise dose of inflationary normality.

“Desperation among Britain’s retailers had led many marketwatchers to fear widespread price cuts would push the UK economy into deflation. Yet against all expectations, Britain has stepped back from the edge of the deflationary abyss.

“The sighs of relief will be loudest at the Bank of England, which had forecast a fall in consumer inflation, and was facing calls for it to push interest rates into negative territory for the first time in its 325-year history.

“Instead the Bank can pat itself on the back as its huge programme of quantitative easing appears to be adding some hoped-for inflationary pressure to Britain’s flailing economy.

“Nevertheless the return of inflation to more normal levels is by no means a return to economic normality. Household consumption collapsed by 23.1 per cent in the second quarter and still has a mountain to climb, with the average British worker currently seeing their paypacket shrink for the first time in two decades.

“So with sterling on a roll after its strong start to the week and UK equities being boosted by yesterday’s record highs on the Nasdaq and the S&P 500, the markets continue to thrive in an alternative reality, seemingly decoupled from the pain being felt on the British high street.”

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