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Inflation, as measured by the Consumer Price Index (CPI) rose to 0.7 percent in October. This was a somewhat surprising jump from 0.5 percent in September, as many analysts expected the rate to remain flat.
The increase was largely boosted by the rising costs of clothing, food, second-hand cars and computer games.
Despite the rise, inflation still remains very low when compared to “normal” periods and Rachel Winter, an Associate Investment Director at Killik & Co, explained why that may be: “The tiered restrictions in October led to a fall in consumer spending.
“Although inflation has managed to rise, it remains at a very low level.
“As we make our way through this second lockdown, we wait to see if we’ll have limitations on the public lifted or are told to revert back to region-specific restrictions.
“Either way, we’ll continue to see the impact on inflation figures of people being told to stay at home throughout November, advised not to travel and non-essential shops shut down once again.”
Rachel went on to examine how Christmas will be factored into the mix: “In a usually busy Christmas season, particularly for the hospitality and retail sectors, we’ll be keeping an eye on how any changes to the lockdown will positively or negatively impact them.
“Either way, the public spending that is usually seen during this time of year will certainly be severely curtailed.
“However, the recent news of a potential vaccine has caused widespread optimism with stocks within those sectors seeing huge upticks in share price.
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“While it may be a little late to save Christmas spending, it’ll certainly provide positivity into the New Year and we’ll be watching the impact closely.”
While Rachel shared optimism for the early months of 2021, Becky O’Connor, the Head of Pensions and Savings at Interactive Investor, used the inflation figures to highlight the risk of keeping cash in one place.
Becky pointed out that rising inflation and low interest rates could be a dangerous combination: “Rising inflation at a time of ultra-low interest rates demonstrates the risks of keeping too much money in cash savings accounts.
“While cash is an important part of anyone’s long term savings strategy, there should be a red warning for anyone who keeps more than they need in cash accounts, particularly money not needed in the short term, as it may be losing value in real terms unnecessarily.”
CPI notoriously does not include house price rises and as such, it has been deemed unsuitable as a measurement for some time.
However, the ONS has recently updated their UK House Price Index, which showed a much bigger 4.7 percent rise in September.
These results have been once again affected by coronavirus and government action and Jonathan Hopper, the CEO of Garrington Property Finders, analysed what could lay ahead for the coming months: “Of all the unexpected consequences of Britain’s Covid crisis, the house price boom is perhaps the most surprising.
“The Land Registry’s data confirms that the surge in prices is real and sustained. In the 12 months to the end of September, prices rose nearly four times faster than they did in the year leading up to the UK’s Covid outbreak.
“And the annual pace of price growth is now an incredible eight times faster than it was during the depths of the first national lockdown.
“Not even during the frothiest days of the pre-Financial Crisis boom did price growth jump so far, so quickly.
“Lockdown living sparked the fire, as months of confinement led thousands of people to decide that they wanted more from their home – more space, somewhere comfortable to work and a better standard of life away from the big cities.
“The Chancellor’s Stamp Duty cut, and crucially the fact it was time-limited, then poured fuel on the flames.
“The resulting Stamp Duty stampede – in which buyers have been racing to complete their purchases before the tax break ends – has boosted prices and, in the most desirable areas, detached the property market from economic reality.
“Too many buyers are being tempted to overpay just to secure a tax discount, and losing sight of the fundamentals of buying.
“With England’s second lockdown hitting the pause button for many sectors, the market could now be forced into a welcome reality check.
“As activity slows, we’re already seeing price reductions by overzealous sellers who have had to recognise that their initial pricing expectations were overly ambitious. The question now is how hard the brakes will be applied, and for how long.”
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