Inflationary pressures bear down on Governor

Last month’s inflation figures are proof that prices are on the rise again and that this factor will once again have to be included in the Government’s plans to maximise our economic growth.

There are a number of reasons why inflation increased from 0.6% to 1.0% last month.

For example, fuel prices were on the rise in September, whilst a year earlier transport costs had been falling, and there is a similar story for clothing and footwear, with a particular spike in the price of women’s outerwear.

Another large increase came in the cost of overnight hotel stays, although this came in the wake of an unusually pronounced fall in prices in August.

It is possible that the effects of the fall in the value of sterling in the international currency markets have had an impact on inflation, even in just a short few months.

Retailers are telling us that the cost of imported products is rising, and one recent example of this was the highprofile launch of Apple’s iPhone 7.

In the US the new phone came in at the same price as the equivalent outgoing model.

Whereas, in the UK, the base model came in at £60 more expensive than the equivalent iPhone 6S, rising to a £100 difference for the top-end model.

This could result in a long-term impact on inflation as these price increases track through into multi-year phone contracts.

Our Scottish Chambers of Commerce Quarterly Economic Indicator has recently shown that almost 40% of retailers are expecting prices to increase over the next three months.

Whilst recent exchange rates do seem to have bolstered both exports and tourism spend from overseas, rising inflation could store up some challenges for the future.

On a positive note, inflation rates are still well within the UK Government’s target rate of 2%, and have been for some time.

Difficulty would only arise if inflation was to exceed this target for an extended period, without a foreseeable prospect of a return to target.

Under those circumstances, the Bank of England would normally resort to monetary policy and raise interest rates to a level consistent with meeting the inflation target.

However, if economic forecasts are to be believed, then UK growth may slip to below 1% both next year and in 2018.

Increasing interest rates could run the risk of damaging growth prospects further and risking job losses.

The Bank of England may find itself between a rock and a hard place.

Whilst Governor Mark Carney has indicated that he is prepared to tolerate higher inflation for a period, it may not be too long before talk returns to the prospect of higher interest rates.

Bank of England Governor Mark Carney could have some tough calls to make in the coming months as he attempts to steer an even course for the UK as the sands of the economy constantly shift.