Smith & Williamson inflation reaction: ‘Bank of England reluctant to throw the consumer out of bed’

Following the news this morning that CPI inflation remained at 2.6%, Thomas Wells, manager of Smith & Williamson’s Global Inflation Linked Bond Fund, comments on what this means for consumers:
‘CPI remains well above the Bank of England’s 2% target and we expect it to remain elevated throughout Q3 and Q4 2017. Headline inflationary pressure should begin to moderate in 2018 as the large year-on-year slump in sterling drops out of the numbers.’
 ‘However, it is worth remembering that the impact of inflation on consumers is likely to be lagged, meaning that consumers are likely to have to live with price rises beyond 2017. For example, regulated rail fares will be reset in January 2018 based on today’s RPI number, which was 3.6%. Even if the government intervenes for political reasons and limits the increase to, say, 3%, a £5,000 season ticket will still cost an extra £150 a year in January. Some unregulated fares are likely to go up much more. Utility tariffs and other bills are also linked to inflation, so consumers can expect to be hit in the pocket there too.’
 ‘Policy wise, we think the Bank of England will continue to look through the inflation data, leaving rates unchanged. Few, if any, of the Brexit uncertainties are close to even a basic form of resolution and with UK savings ratio at incredibly low levels, the BoE will be very reluctant to throw the consumer out of bed, particularly as wage growth is failing to keep pace with inflation.’