THE announcement on Tuesday morning by the Office of National Statistics (ONS) that UK inflation had fallen to 1.20 per cent a year in September from 1.50 per cent is a mixed blessing depending on your personal financial circumstances.
A combination of a depressed oil price, with Brent crude trading below $88 a barrel, and the heightened competitiveness in the supermarket space, due to the gains being made by the discounters such as Aldi and Lidl, looks likely to have taken the pressure off the Monetary Policy Committee (MPC) of the Bank of England having to raise interest rates anytime soon.
Expectations that interest rate rises may start as soon as the first quarter of 2015 now look very unlikely. With a general election due in the second quarter of 2015 it would not be unprecedented but very unusual for a rate rise to take place prior to the election. We could, therefore, be nine months or more away from upward pressure on interest rates. The major beneficiaries of any deferment of an increase in interest rates are borrowers. Below-trend wage inflation over the past five years has left borrowers exposed to any significant increases in fixed costs.
The inflation announcement is, therefore, good news for this sector of the population.
UK companies that have significant export earnings will potentially be assisted by the likelihood that interest rates will not rise as quickly as expected, as this helps to reduce the value of the pound which in turn aids price competitiveness for these companies. This obviously helps the workforce of these companies in terms of job security and the potential for wage increases.
As has been the case since the ultra-low interest rate policy was introduced at the onset of the financial crisis, it will be savers that bear the brunt of continued low rates of return on their savings. The key is, therefore, to look around and make the best of what is on offer and ensure that you are getting the best return possible in this low-rate environment.
A lower pound may also mean less value relative to foreign currencies when you go on holiday. As can be seen, for every winner there is a loser but taking the broader view, low inflation should be good for the majority.
• Alan W Mackie is a director at Campbell Mackie Limited IFAs