UK delivers surprise drop in inflation

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UK inflation has confounded expectations by dropping to 0.9 per cent in October, pulled down by university tuition fees and clothing prices.

Economists had expected inflation to edge upwards to 1.1 per cent as the impacts of weakened sterling feed through to input costs.

It had jumped to 1 per cent in September from 0.6 per cent in August.

Sterling has slipped by half a cent against the US dollar on the news.

Ben Brettell, senior economist at Hargreaves Lansdown, says the “surprise fall looks like a blip”, pointing out that total input prices were up 4.6 per cent from September.

“It should be only a matter of time before this feeds into higher consumer prices,” Brettell says, adding wage growth is also expected to be weak in the wake of the vote to leave the EU.

However, it points out that structurally there are “very few” inflationary pressures, despite sterling’s impact.

“The baby boomers are starting to retire in their droves. They have already gone thorough their consumption phase – they have bought their houses, cars and consumer goods.

“The generation behind them is saddled with debt and struggling to get on the housing ladder.

“There is also no sign of any tightness in the labour market, with wage growth seemingly set to remain depressed.”