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Monday, 28 November 2016

Hammond Urged to Protect Poorest from Long-term Rise in Inflation

(The Guardian): Chancellor gets surprise boost as UK inflation rate dips to 0.9% but analysts expect cost of living to climb as rising costs feed through to consumers

Philip Hammond was on Tuesday being urged to ignore a small and unexpected fall in inflation and use next week’s autumn statement to protect Britain’s poorest families from an expected sharp rise in the cost of living in 2017.
The chancellor was provided with a boost ahead of his first set-piece occasion on November 23 when cheaper clothes and a smaller increase in university tuition fees meant the annual increase in the cost of living as measured by the consumer prices index fell from 1% to 0.9%.
But City economists, academics and thinktanks said the drop in inflation – which followed a 0.4 percentage point rise in September – would prove temporary and that the upward trend would continue as the impact of the cheaper pound on imports became clear over the coming months.
Related: UK inflation rate drops to 0.9% – business live
UK inflation rate, 2010 to present UK inflation rate, 2010 to present
Helen Barnard, head of analysis at the independent Joseph Rowntree Foundation, said: “Higher costs of goods and essentials impact on poorer families more, so ensuring support for those on low incomes keeps up is crucial. The poorest fifth of people in the UK spend £1 in every £6 of their income on food, much more than middle-income earners, so a price rise will have a bigger impact on the household budgets of less wealthy families.”
Barnard said the four-year freeze on working-age benefits announced by George Osborne in 2015 looked “increasingly out-of-date and should be lifted in the autumn statement.”
Andrew Goodwin, UK economist at Oxford Economics, said: “The four-year cash freeze on most working age benefits was introduced at a time when inflation was expected to be much weaker. Subsequent developments mean that those affected will endure a much more significant squeeze than had been anticipated, so the chancellor could be minded to use next week’s autumn statement to announce a one or two-year hiatus in the benefits freeze in order to try and alleviate some of the extra pressure that it will cause.”
The Office for National Statistics said that in addition to cut-price clothes and university fees, inflation was dragged down by offers on toys and games, reductions in the cost of overnight hotel stays and falling prices for non-alcoholic drinks.
While the ONS said there was no evidence that the depreciation of sterling since the Brexit vote in June had led to dearer prices in the shops, there were signs of the exchange rate affecting the cost of manufactured goods leaving factories.
Factory gate prices in October were 2.1% higher than a year earlier, up from 1.3%. Manufacturers are being forced to pass on the cost of rising fuel and raw materials, up 12.2% in the 12 months ending in October compared with a 7.3% increase in September.