Commentators say chancellor should be wary of inflationary tax measures after consumer price index comes in under expectations.
Inflation stood still at 3.8% in September, coming in under expectations ahead of a Budget next month that will include tax rises.
Consumer price index (CPI) figures released this morning showed prices had not risen quite as much as the 4% predicted by the Bank of England and economists.
The CPI reading stoked some talk of further rate cuts before the end of the year, although commentators warned the 3.8% figure was still a way above the Bank of England’s 2% target and the Budget could throw up inflationary measures.
‘The inflation picture is not pretty here in the UK,’ said Zara Nokes, global market analysts at JP Morgan Asset Management. ‘With long-term household inflation expectations picking up, there is a real risk that price pressures become further entrenched.’
Nokes said the figures showed chancellor Rachel Reeves needed to consider whether any policy announcements in her Budget would lead to inflation.
‘If the inflation flames are further stoked, for example by increasing VAT rates, the Bank of England, which is rightfully concerned about upside inflation risks, will be unable to deliver rate cuts and provide much-needed support to the economy.’
Quilter investment strategist Lindsay James also highlighted the impact of tax measures following last year’s national insurance (NI) hike for businesses.
‘While there is some optimism that as we reach the one year milestone since the changes to employer NI were first introduced some pressures on inflation will ease, it’s possible that others will be introduced at the November Budget,’ she said.
‘The chancellor must avoid adding further inflationary pressure at the upcoming budget given today’s more positive figures.’
Charles Walmsley CityWire