Inflation falls to 2.2% thanks to lower fuel costs

The UK's inflation rate has dropped to a 16-month low but with energy bills about to go stellar - will it stay low for long?

by Gabriella Griffith
Last Updated: 12 Nov 2013

We can almost hear Bank of England boss Mark Carney’s sigh of relief from here; the inflation rate has fallen to 2.2% in October, down from 2.7% the previous month – easing pressure on the Bank of England to increase interest rates. For now.
 
The rate, measured by the consumer prices index (CPI), found inflation to be lower than the expected figure of 2.5% and the lowest since September 2012. The drop mirrors a similar drop in inflation across the Channel in the eurozone last month.
 
If inflation had remained high, the Bank of England would have come under more strain to raise interest rates – something it says it won’t do until the unemployment rate falls down to 7% (from 7.7%).
 
The fall, irrespective of the national energy rise hysteria, has been put down to lower fuel prices. Transport costs fell by 1.5% between September and October – thanks largely to fuel price cuts (a petrol price war between supermarkets helped).
 
‘Falling petrol and diesel prices seem to have done the most to drag the inflation rate down, and the ongoing softness in Brent crude prices means there may be a little more of this to come in the months ahead,’ said economist Rob Carnell at ING.
 
Education costs also dropped – the knock-on effects of tuition fees being much smaller than in 2012. Food inflation too came down a touch – from 4.8% to 4.3%.
 
But, and this is a big but, the much publicised and scorned price hikes by the large energy companies have yet to take effect – when they kick in they are bound to have an inflationary impact. Mark Carney might have to do more than simply ‘put on another jumper’ as No.10 prescribes.  
 
Meanwhile, the research beavers at Reuters have discovered something else of interest to London’s financial district – (and it won’t be as well received as lower inflation rates) – staff at the UK’s new financial watchdogs are leaving in their droves.
 
The research by the news agency has found staff are quitting both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) at twice the rate they were at the Financial Services Authority (FSA) - the body which was split to create the FCA and PRA.
 
This revolving door of quitters isn’t good news for the watchdogs – regulatory skills are highly sought after at the moment and the two bodies need top talent if they are to do carry out the closer scrutiny of the banking sector required of them.
 
‘It's a concern for regulators and they will continue to see a tremendous amount of pressure on keeping their employees,’ Etay Katz, regulatory partner at law firm Allen & Overy told Reuters.
 
According to the data – staff are leaving the FCA at an annual rate of 12% and the PRA at a rate of 11% - this compares with pre-split FCA results of 6.9%. Ouch.
 
So what is the reason behind the mass exodus? In a classic case of unintended consequences; the more rules the watchdogs piles onto the City, the more regulatory staff become like gold dust - and the faster the banks will poach them from the regulators. With wages rises pretty high in compliance – staff in the private sectors would normally earn significantly more than employees of the regulators.
 
‘The more the regulatory pressure increases, so does the risk of the FCA and PRA losing staff. It really can become a vicious circle,’ Katz said.
 
‘My concern is more on the FCA side. How are they going to attract the calibre of people when banks are paying two or three times as much?’
 
How indeed? It’s quite the conundrum.

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