IoD responds to latest inflation figures

Responding to official inflation figures, showing that the Consumer Price Index (CPI) rose to 2.1% in July, Tej Parikh, Chief Economist at the Institute of Directors, said:

“While inflation remains low, the slight pickup in the cost of living is a dampener for the economy.

“The up-tick in prices will eat into wallets, but with the rise in pay still outpacing it, households will continue to feel their earnings stretch a little further. For the time being, solid real wage growth is providing some support for consumers who have already shown resilience in the face of broader economic concerns. However, productivity challenges will limit just how far businesses can push up wages.

“Looking ahead, the recent weakening in sterling will provide some upward pressure on prices as firms begin to feel the pinch of higher import costs.”

On implications for the Bank of England’s interest rate policy, Tej Parikh commented:

“The small increase in inflation may not be enough to jolt the Bank of England away from its wait-and-see strategy on interest rates with Brexit around the corner. Despite the recent pick-up in wages, the Bank must be open to a possible rate cut ahead of the UK’s departure from the EU, to help support businesses and households.”