New Figures Reflect Consumer Price Relief Ahead of Brexit Departure

Just when observers thought they had a good read on the UK economy, important economic indicators may have them second-guessing conditions leading up to Brexit.

Prolonged negotiations and Brexit uncertainty have led to economic instability, leaving many analysts unsure about the future of the UK economy – particularly what will happen following Brexit, which further complicates forecasts. Rising prices and stagnant wages have at times troubled onlookers, prompting UK consumers to dial-back spending amidst uncertainty. A new set of figures shows positive gains in some segments of the economy, providing a lift ahead of the historic departure.

Inflationary Pressure Eases

Consumer spending has filled a vital role during the run-up to Brexit, buoying the UK economy, whilst other segments have undermined economic stability. Rising prices have at times dampened consumer enthusiasm, leading to spending slowdowns, but consumer contributions to the economy have again recently sustained the economy in the face of reduced business spending and investment.

The fall in inflation and subsequent rise in UK household spending power is sure to provide relief for families as the October deadline for leaving the European Union grows nearer.

According to the Office of National Statistics (ONS), prices of goods and services performed better than expected in August. A Reuters poll indicated economists foresaw a 1.9 per cent rate of increase on consumer goods and services. The actual figure for August was 1.7 per cent, following July’s consumer price increase rate of 2.1 per cent. The positive news illustrates the slowest rate of growth in consumer pricing dating all the way back to December 2016.

On the housing front, another new set of ONS figures showed a .7 per cent increase in house prices, in annual terms. Resulting in part from the spread of weak house price growth in London, the increase reflects the slowest level of growth since 2012.

Improved Purchasing Power Follows Sterling Drop

Brexit strain pushed the value of sterling sharply lower in August, as tensions escalated over issues surrounding the pending departure. Though sterling has bounced back this month, the improved spending power resulting from the dip in inflation is a welcomed development, helping UK families get back on track prior to leaving the EU.

It is thought lower prices on computer games and trends in clothing markets may be at least partially responsible for the drop in inflation. In the wake of positive economic reports, short-term loans continue assisting UK families having cash flow problems between paydays. Various online lenders offer access to fast cash, furnishing funds without a long wait for credit approval. Interest rate changes may be on the horizon, with the Bank of England (BoE) announcing that an interest rate increase is likely in the medium term.

In addition to foreshadowing an interest rate bump, BoE predicted last month that the rate of inflation is headed for a years-long low during the fourth quarter of this year. The Bank’s forecast set an expectation for an increase of 1.6 per cent during the year’s final quarter.

Workers Feel Wage Growth Gains

Lower inflation is good news; paired with faster wage growth, the trends could have a significant impact on UK family finances. Official figures indicate wage growth reached 4 per cent in the three months to July, representing the biggest increase in 11 years. Under some conditions the bank might respond by tightening rates, but with inflationary pressure in check, the move is not expected.

Along with reported figures, ONS also envisions light pressure on consumer pricing for the foreseeable future. Raw materials pricing is not expected to rise sharply and reduced oil costs contributed to lower prices last month than those seen in August 2018.

Whether or not stability prevails up to and following Brexit, lower inflation and brisk wage growth are welcomed bits of news, recently shared by the Office of National Statistics.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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