Commenting on the news that the consumer prices index (CPI) rose by 1 per cent in September, Rob Donaldson, RSM’s head of corporate finance said:
‘It should be no surprise to see the relatively large uptick in the inflation numbers for September. The sharp fall in sterling since the referendum will inevitably have pushed up import prices and whilst manufacturers and retailers will to some extent seek to shield their hard-won consumers from the pain, some feed-through was inevitable.
‘The detail demonstrates the continued pressure on food retailers to protect their customers from the impact of currency movements. Not so for apparel retailers and in particular anyone unfortunate enough to need a new winter coat (outerwear price movements were particularly pronounced). Clothing and footwear, heavily reliant on imports, were the biggest contributors to the increase.
‘This is likely to be only the beginning. The accelerating demise of sterling in recent weeks will take time to feed through as existing stocks are drawn down, existing contracts fulfilled and existing currency hedges do their job. As those "cushions" wear off the full impact will feed through to a spike in inflation next year.
‘That said, all these things need proportion. A spike from practically non-existent inflation is no cause for panic as the relatively relaxed comments from the Governor of the Bank of England, Mark Carney and other voices on the MPC testify to. Indeed, the UK can afford to allow a little inflation in order to protect employment and economic growth generally. Inflation will make us a little poorer, yes, but less so than the alternatives.
‘The more muscular stance of the BoE, the decline in sterling and the consequent pick-up in inflation are the shock absorbers taking the initial pressure of the economy. All eyes should now turn to the Chancellor’s Autumn Statement on the 23rd November. This will be the first opportunity for Philip Hammond to take ownership of UK fiscal policy. We expect to see a change of tone as an indication of a further effort to support the UK economy through the initial shock of Brexit.
‘For mid-market businesses this is how things are likely to be for a while; weak sterling, a continuation of rock bottom interest rates, a more flexible fiscal policy and a return of some limited inflation for the next 12-18 months. After that we can expect to see a little more clearly the longer term picture.’