Inflated business fears of a rate rise still fail to be soothed

Comment Martin Flanagan

High street inflation has again risen, hitting 3 per cent in September, its highest level since 2012. Undoubtedly, given the pallid level of average earnings growth (it was a shade above 2 per cent in the three months to July), it means the cost of living for households has worsened again.

It has been a continuing theme since the early summer, with inflation hitting 2.9 per cent in August and 2.6 per cent in both July and June. The latest hike in prices was largely down to higher food and transport components, partly softened by the yearon-year rise in clothing prices last month easing back after a jump in August.

The latest increase in inflation will not help business organisations trying to stave off a potential interest rate rise in November by arguing it may threaten consumer and business confidence and the halting progress of the wider UK economy since the Brexit vote.

Most economists believe inflation looks likely to hover at 3 per cent or just above through the fourth quarter. You can see, therefore, why business is casting glances askance at the Bank of England (BOE) on interest rates.

There is now clear water between where prices are and the government’s mid-term target of 2 per cent. But, perhaps the wish being father to the thought, many in business believe the BOE should hold its nerve and keep rates at 0.25 per cent.

They point to factory gate prices being calmer in September after a spike in August. Oil prices are also expected to soften a bit given the supply glut, and that would also be a depressant on inflation as we move into 2018. The economy going far from great guns against the now almost systemic backcloth of Brexit may also limit domestic price pressures.

In short, this argument is that the latest data is a concern but there are signs inflation might have peaked. Hornby has been a bit of a train crash for a while now. The Scalextric-to-airfix business has put out another profit warning as it said it revenue performance so far this year has been below expectations. In addition, its interim chairman David Adams has told the Hornby board he intends to step down to take up another appointment. In terms of recovery, it looks like a stopping train.