By Ben Barlow
July’s inflation figures show that inflation dropped to 2.6% in June, down from 2.9% in May, largely as a result of falling oil prices. This could have numerous implications for both businesses and the general public, and many will be watching with a keen eye for the next release of inflation figures later this month.
Here are some of the effects these inflation figures may be having on UK businesses and the general public.
It is well documented that lower inflation means that exports stay competitive. This is because UK goods rise at a slower rate compared to other countries, making them a more attractive option overall. Now that pressure on the Bank of England to raise interest rates has eased off, exporters may well be looking to take advantage of the opportunity by selling greater volumes of goods. This could well lead to growth in this sector, especially when the drop in the value of the pound is taken into consideration, and there may be further opportunities for exporters if inflation drops again.
The value of the pound has dropped considerably since the Brexit referendum in 2016, and contributed towards the drop in the inflation rate. After the BoE decided to keep the key rate at 0.25%, the pound dropped from an 11 month high against the euro, instigating surprise amongst investors.
As with anything, there are winners and losers from this news. The tourist industry, for instance, will most likely benefit, as the lower pound attracts savvy tourists wanting to get more for their money. On the flipside, British tourists will face higher prices overseas in many countries.
High inflation usually leads to investor caution, given that it usually creates volatility in the economy and various markets. This means that the release of the most recent inflation figures is good news for those looking for a steady market, as lower inflation should lead to greater economic and market stability.
Those trading CFDs and assets on global markets will no doubt be looking at how businesses have been affected by the falling inflation rate, and whether the various different global markets will react to the news.
Despite inflation falling, prices are still outstripping wages, meaning that the inflation rate may not pose much of an advantage to regular consumers. Food in particular has been major hikes in terms of prices, and the fact that wage growth has been so slow means that most consumers are still unwilling to spend a large amount. In this sense, it is important to remember that Brexit is still having a significant effect on the UK economy and UK businesses, and will continue to do so for the foreseeable future.
Ultimately, the lower inflation rate will create investment and economic advantages for some consumers/businesses whilst creating uncertainty for others. It will be interesting to see the next inflation figures, which should give a clearer idea of where the economy is next headed in the short term.