UK Consumer Price Inflation Report For August 2019 Is Out!

UK Consumer Price Inflation Report For August 2019 Is Out!

Inflation can be defined as the rate at which the prices of goods and services increase. It is the single most crucial economic measure which reflects financial wellbeing of an economy. If it increases faster, it could lead to a gradual fall in the purchasing power of the citizens. That’s why central banks of most of major economies have inflation target within the range of 2% to 2.5%.

In the United Kingdom, the Bank of England (UK’s Central bank) has set the inflation target at 2%. As per latest consumer price inflation data revealed by the Office for National Statistics (ONS) for August 2019, the CPI including owner occupier’s housing costs (CPIH) 12-month inflation rate stood at 1.7% and declined 30 basis points from July 2019 CPIH of 2%.

In between July to August 2019, the large chunk of decline to the 12-month CPIH rate come from came from varied cultural and recreational goods and services, clothing and sea fares. However, decline in recreational and cultural goods and services was partially offset by increase in air fares. The Consumer Price Index (CPI) 12-month rate for August 2019 was stood at 1.7% and recorded a decrease of 40 basis points from July 2019 rate of 2.1%.

The highest upside contribution to the CPIH-12-month rate since November 2018, has come from housing and household services, where price surging by 1.9% in the year-to-August 2019. Within the housing and household services which contributed approximately 0.56% to the total inflation rate, the large chunk of contribution came from owner occupier’s housing costs which stood at 0.19%, followed by utilities like electricity, gas and fuels at 0.18% while council tax and rates contributed approximately 0.12%.

However, electricity, gas and other fuels have fluctuated greater than the rest of the pack, although it slumped in January 2019 post cap on energy prices effected by the Office of Gas and Electricity market (Ofgem). It continued to move upwards again from April 2019 when the price cap was reset by Ofgem.

Also, significant contribution come from restaurants and hotels, where prices surged by 2.8% in the year-to-August 2019 period.  Meanwhile contribution from Transport, which is one of the largest constituents among broad grouping of CPIH, has narrowed over a few months. During August 2019, contribution from transport to the overall CPI stood at 0.16% and it slumped from 0.75% recorded in the August 2018. Within the transport arena, contribution of fuels is negative, and it fell marginally by 0.1% on the year. Since August 2016, this was the first negative 12-month rate for motor fuels.

Clothing and footwear products also recorded small negative contribution the CPIH-12-month rate. This continues to record negative contribution between September 2018 and June 2019; however, the trend broken by a marginal upward contribution in July 2019.

The ONS reports that the reason behind fall in the CPI rate was lower price movement in computer games and a hangover of retailers’ summer sales also weighed on clothing and footwear. Prices generally rise around this time of the year as autumn ranges start to enter shops.

UK House Price Index for June 2019- ONS

The Office for National Statistics released UK’s house price inflation index for the month of July 2019. The housing price inflation during the year to July 2019, surged by 0.7%; however, it was below the 1.4% recorded in the June 2019. This is the lowest annual rate recorded since September 2012, when it was at 0.4%. In the last three years, the UK witnessed general slowdown in house price growth, on account of slowdown in the east and south England.

North East witnessed lowest annual growth, where prices declined by 2.9% in the year-to-July 2019. The slowdown was followed by the South East as well, where prices dropped 2.0% over the year.

During the month under consideration, the average house price was at £233,000, which was £2,000 above the same period of the previous financial year. On a non-seasonally adjusted basis, average prices in the UK surged by 0.5% in between June 2019 to July 2019. This compares to 1.2% growth recorded during the same period of the prior year. Also, seasonally adjusted average house prices in Britain recorded a decline of 0.3% between June 2019 and July 2019.

However, house prices in Wales leapt up by 4.2% in the year-to-July 2019, although it was marginally below the 4.3% growth recorded in year-to-June 2019 while in Scotland house prices improved by 1.4% in the year-to-July 2019, which was 60 basis points below the 2.0% recorded in year-to-June 2019. The average house prices in Scotland was at £154,000 and the average house prices in England stood at £249,000 and recorded a growth of 0.3% over the year-to-July 2019. However, the price growth for England in the year-to-July 2019 was substantially below the growth of 1.1% recorded in the year-to-June 2019. Housing prices in Northern Ireland remain the cheapest in the UK and average house price over there stood at £137,000.

Meanwhile, housing prices in London, East of England, South East and South West declined by 0.9% in the year-to-July 2019 against the growth of 1.8% in the Midlands and 1.7% growth in the northern England.

At the regional level, the Yorkshire and The Humber were the English regions witnessing the highest appreciation in annual prices of 3.2% in the 12-months-to-July 2019. This was followed by the North West where prices recorded an increase of 2.3% in the same time period.

Despite housing prices in the London and South East witnessing a fall on Y-o-Y basis, properties in these areas stood most expensive with average property prices over these areas at £478,000 and £320,000. On the other hand, house prices in the North East remain the lowest with average price at £127,000.

The ongoing Brexit-related headwinds will continue to impact the housing market in the UK and consumer sentiments as well, with substantial evidence that reflects both buyers and sellers are exercising caution. However, a range of significant underlying influencers such as affordability and employment remain strong.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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