Smith & Williamson: ‘Bank to remain on hold despite jump in inflation to 2.9%’

In response to today’s official inflation reading showing UK CPI came in at 2.9% year-on-year in August, up from 2.6% in July and slightly above consensus expectations, Thomas Wells, manager of the Smith & Williamson Global Inflation-Linked Bond Fund, said:
“CPI remains well above the Bank of England’s 2% target and we expect it to remain above target throughout the third and fourth quarters of 2017. Headline inflationary pressure should begin to moderate in 2018 as the large moves in the pound drop out of the reported numbers.
 “For consumers, this unfortunately does not mean that they can forget about inflation. History tells us that the impact of inflation on consumers tends to be lagged, i.e. companies will try to absorb some of the pain before passing on price hikes to consumers. Moreover, the broad CPI readings may bear no resemblance to the more severe level of real income erosion that is suffered by some individuals, particularly those living on fixed incomes. Wage growth in the UK remains poor despite the fact that the labour market ostensibly looks strong. At the margin, the hurricanes in the US also pose some modest short-term global inflation risks if energy and gasoline supplies are disrupted.”
 “Policy wise, we think the Bank of England will look through the inflation data and we still believe that the Bank will remain on hold until 2018.”