Inflation falls back to Bank of England target level

Danni Hewson
18 August 2021

•    UK CPI inflation has fallen to 2% down from 2.5% last month (ONS figures) 
•    Transport price rises partially offset by falling cost of clothing and footwear
•    Falls partly down to comparisons with last year’s reopening hikes

Danni Hewson, financial analyst at AJ Bell, comments:

“Two percent. What a lovely round number. A number that appears to give members of the Bank of England’s MPC a great deal of wiggle room. The return of summer sales in clothing and footwear has helped keep prices down.  The cost of eating and drinking out which surged on reopening last year has been subdued by comparison as has the cost of services like getting a haircut where salons aren’t having to shell out for emergency PPE.  Shops were also putting up prices last year as they rushed to cash in on a return to business and hoped to offset the cost of closures and desperate discounting.  There’s also a question mark about how the price of a package holiday has been imputed, something that may disguise the real picture of how much Brits are shelling out for their fix of summer sunshine, if they’ve been able to get one.

“Those falls have cushioned hikes in the cost of buying a banger, or at least a new to you car. Something of a perfect storm of chip shortages resulting in fewer new vehicles on forecourts and last year’s drop in new car sales meaning less one year old’s up for grabs, have sent used car prices sky rocketing, and there are tales of motorists employing nefarious tactics to beat out the competition to the cream of motors available.

“But we are not out of the woods quite yet.  Nando’s is the latest restaurant to be hit by supply chain issues, which are expected to continue right through the rest of the year.  The prices paid and charged by factories are still going up and shortages and shipping costs will make the next few months a rather expensive business for importers.  

“Then there’s yesterday’s jobs numbers and wage hikes which must be carefully considered as part of the whole. If people have more to spend, they might be prepared to keep spending just that little bit more and businesses might need to push up prices to cover their costs, creating a lovely muddy circle. Yes, July has brought a surprising bit of breathing space, but this inflationary story doesn’t seem to have quite run its course.”

Danni Hewson
Financial Analyst

Danni spent more than 19 years at the BBC, presenting and reporting on business news across a variety of programmes – including BBC Breakfast, BBC News Channel, BBC Look North and latterly Radio 5 Live’s flagship business programme ‘Wake up to Money’. She is now responsible for producing analysis and commentary across a broad range of subjects at AJ Bell, from financial markets, to economics and personal finance.

Contact details

Mobile: 07593 451 437
Email: danni.hewson@ajbell.co.uk

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