Price inflation, as measured by the Consumer Prices Index (CPI), rose slightly in the year to February. The first time since last summer this measure of inflation has reported a rise, a trend that continued through to April.
CPI inflation was up from 1.8% in January to 2.1% in April, with most broad categories of goods and services continuing to make an upward contribution towards price inflation.
Another measure of inflation, CPIH, which includes owner occupiers’ housing costs, was steady at 2% in April.
Upward contributions to price inflation came from higher prices for food, alcohol and tobacco.
There was also some downwards pressure on prices, including clothing and footwear, where prices rose between January and February at a slower pace than a year earlier.
“Inflation picked-up for the first time since August 2018, with rising prices across a range of items including food and alcohol, placing the largest upward pressure on price growth in February.
Inflation is likely to drift higher in the coming months as the expected increase in Ofgem’s energy price cap in April enters the calculation. Businesses also continue to report that the cost of imported raw materials are rising. As these high input costs filter through supply chains, they could increase the upward pressure on consumer prices in the short-term.
Overall, the UK’s weakening economic outlook is likely to ensure that any increase in consumer prices would be largely transitory, and inflation is expected to remain close to the Bank of England’s 2% target for some time to come.
With the current trajectory for inflation largely benign, there remains sufficient scope to keep interest rates on hold through this year, particularly against a backdrop of increasing anxiety over Brexit and slowing economic growth.
The overriding priority must be for parliament to avoid a messy and disorderly departure from the EU, which would likely drive a marked drop in sterling and could significantly increase inflation and the cost pressure on businesses and consumers.”Commenting on the inflation statistics for February 2019, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC)
Alongside the official price inflation figures came news that house prices rose in January at their slowest pace in six years.
According to the Office for National Statistics, average UK house prices rose by 1.7% in the year to January, after reporting a rise of 2.2% in the year to December.
Back in October 2017, average UK house prices had risen by 5.1% in the space of a year, with the latest official figures marking a substantial slowdown.
Based on this current trajectory for average house prices, the UK housing market might experience its first average house price fall since the global financial crisis by the end of 2019.
Brexit uncertainty seems to be the biggest single driver behind slowing house prices, with the London market, in particular, suffering from an absence of overseas buyers.
In London, average house prices fell by 1.6% in the year to January, after dropping by 0.6% in the year to December. There were also regional house price falls reported in the East of England, with average prices down by 0.2% in the year to January.
Price inflation and property prices are two assumptions that form part of the Financial Planning process. It’s important to make reasonable assumptions about these values in the future, keeping them under regular review to adjust the Financial Plan as things change.
Brexit uncertainty appears to be the main factor driving forecasts for both prices and the property market over the coming months.
Jon Doyle is Founder and Financial Planner at Juniper Wealth Management. Advising clients since 2008 he has guided clients through good time, bad times and the ugly. With a clear vision on how advice should be delivered and strong opinions on how we should be investing money in order to live the life we want to live free from money worry.