Inflation Falls

Inflation Falls to Three Year Low

Inflation reached its lowest rate since 2016, falling to 1.7% in August, which suggests that interest rates are unlikely to rise in the near future. This is lower than the expected rate of 1.9% and the Bank of England’s 2% target. The rate is down from 2.1% in July.

According to the Office for National Statistics, consumer prices were pushed down in August by a range of recreational and cultural goods and services such as toys and hobbies, alongside clothing and sea fares. The rise in the price of flights was the largest counter to this downward course, while food costs also increased.

The low rate means inflation is still below earnings growth with the latest data from the Office for National Statistics showing average weekly earnings were rising by approximately 4% year on year. However, the pound fell 0.4% against the dollar following the inflation announcement which weakens the purchasing power.

The Bank of England is unlikely to raise interest rates at times of low inflation as it aims to grow the economy especially in view of the Brexit fiasco. Of course, lower rates are advantageous to those with mortgages and other loans, although savers continue to face low rates of return on their cash. Whilst individuals should ensure they always hold a sufficient amount in cash to meet short terms needs (at Philip J Milton & Company Plc we typically suggest six months’ worth of expenditure), other investments should be considered if you are holding too much in cash. For those whose cash accounts are providing interest rates below 1.7% will see their cash being eroded by inflation, so alternative investments which seek to achieve returns in excess of inflation should be held alongside more secure cash based funds.

Of course, when seeking higher returns (which the stock market can provide), you do also need to take an element of risk as the value of stock market linked investments can fall as well as rise. In addition, this is not suitable for everyone especially those whose standard of living could be affected if their investments were to fall in value.

Risk Warning

Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.

If you are concerned that you hold too much in cash and are receiving little return on your money, please contact the office and speak to one of our highly qualified Advisers who can discuss your requirements with you.