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      Inflation Sees Unexpected Fall To 2.4%

      CPI inflation slumped to 2.4% in September, down from 2.7% in August, despite widespread expectations of a rise.

      Inflation had remained static at 2.4% between April and June, before beginning to increase in July.

      The latest ONS statistics show that CPIH, which is now used as its headline measure and which includes owner occupiers’ housing costs, was 2.2% in September, down from 2.4% in August.

      The ONS said the largest downward contribution came from food and non-alcoholic beverages, as well as transport, recreation and culture, and clothing.

      September's inflation figure is used as part of the triple lock for State Pension increases from April 2019, which will rise by a rate equal to September 2018’s CPI, earnings growth or 2.5%, whichever is the greater.

      Pensioners can now expect to see their retirement income rise by 2.6% - July's earnings increase figure.

      Tom Stevenson, investment director for Personal Investing at Fidelity International, commented: “Even after the latest slowdown, pensioners will also be happy because they will see their retirement income rise by 2.6% from next April, thanks to the triple-lock guarantee, which the government confirmed this week remains in place for at least the rest of the current parliament. The triple lock guarantees that pensions will rise by the highest of 2.5%, average wage growth and inflation. The relevant figure here is July’s 2.6% earnings increase.

      “While CPI inflation is expected to ease back closer towards the Bank of England target of 2% towards the end of 2018/mid-2019 there are a number of factors which could keep inflation stubbornly sticky in the short term, most notably the recent surge in the oil price and sterling weakness driven by growing fears of a Brexit no-deal."

      Ben Brettell, senior economist at Hargreaves Lansdown, added: "Inflation slowed to 2.4% in September, down from 2.7% in August and undershooting economists’ forecasts of a small rise to 2.8%.

      "But despite the decrease in the headline inflation rate, there are signs inflationary pressures are building in the UK economy. The ONS said yesterday that wage growth reached a ten-year high in the three months to August, and today’s data showed input prices for companies increasing at 10.3%, largely driven by a higher oil price.

      "The Bank of England will be desperate to leave policy unchanged until we get some clarity over Brexit, but two or three interest rate rises are tentatively pencilled in over the next couple of years to bring inflation back to target."

      Source. - Financial Reporter 17/10/18

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