Inflation data shows year-on-year Consumer Prices Index in the UK rose from 2.9 per cent in July to 3.1 per cent in August, broadly in line with market expectations.
XPS analysis shows that defined benefit pension schemes remain in a strong position above £250bn as of 10 September, supported by higher gilt yields and equity markets trading near record highs.
Using the CPI data, prices in the UK have risen by roughly 32 per cent since April 2020. The most recent rise was ascribed primarily to rising energy prices.
Josh Pilley, head of multi-asset research at XPS, says: “Households are already absorbing the 13 per cent increase in the Ofgem price cap that came into effect on 1 July, with a further 4 per cent rise due in October, whilst higher transport costs are also contributing to inflationary pressures across the economy.
“Rising gilt yields also risk eroding the fiscal headroom available to the Chancellor (John Healey) ahead of next month’s Budget, potentially impacting the funds available to support the Government’s cost-of-living measures.”
Ongoing geopolitical crises are also having an impact on the cost of common goods, with the war in Iran leading to supply chain crises relating to the sharp drop in shipping through the Strait of Hormuz.
Hal Cook, senior investment analyst at Hargreaves Lansdown, says: “There are other risks that might cause inflation to go even higher down the line. This includes the current El Nino weather pattern, which has potential to hit crop yields in 2027.
“That’s a headache for the Bank. Rates have been broadly expected to sit at 3.75 per cent until 2027, but higher inflation adds weight to the three Monetary Policy Committee members who think rates should be increased. Adding economic growth of 0.4 per cent in July, compared to forecasts of 0 per cent, makes the decision to increase rates to 4 per cent before year-end even more likely.”
HL research shows that more than half of Britons (55 per cent) would cut back on spending if everyday living costs were to increase and almost three in ten (27 per cent) would save less.