Today the government reported that CPI inflation jumps to 1 percent in July from 0.6 percent, with fuel prices, clothing, hairdressers and dental costs all rising. This comes despite the Bank of England predicting inflation would fall to near zero due to COVID-19.
Richard Pearson, Director at investment platform EQi commented on the news: “While many had their money on another drop in inflation, this morning’s figures provide some hope for the future health of the economy.
“That said, while sectors such as recreation and fuel showed an encouraging uptick in demand, there’s potential for this to fall again with the threat of further outbreaks being reported. For those businesses allowed to stay open, it’s likely they would need to resort to heavy discounts to keep consumers coming through their doors.
“It’s not going to be smooth sailing, but these numbers are proof that we can and will recover. In the meantime, retail investors have yet more insight into how different companies have been faring which can be used to their advantage.”
Laura Suter, personal finance analyst at investment platform AJ Bell, viewed the news as a hit to savers. She said in statement: ““The rise in inflation is another blow for savers who have been hit with successive cuts to interest rates since the start of the year. The only saving grace was that inflation was lower, meaning that getting a real return on their money was at least possible with the top-paying accounts. Now just one easy-access account pays more than inflation, NS&I’s Income Bonds, and that is only open to those with £500 or more to save.”
Adam Vettese, analyst at multi-asset investment platform eToro, weighed up whether the Bank of England’s response would be positive for the markets or not. He said: “The Bank of England will have a decision to make soon about whether to intervene to inject life into the economy, which is healing slowly. Many have suggested this could come in the form of negative interest rates.
“It’s far from clear whether the central bank will take such a drastic step, but if it does then it will almost certainly feed into share prices.
“If you’re an optimist, the banks will feed the reduced borrowing costs that result from negative rates to firms, therefore boosting profitability and lifting share prices. If you’re a pessimist, then the opposite is true and share prices will fall.”
