Charlotte Jones, Senior Consultant, XPS Pensions Group, commented: “Although long-term inflation expectations have remained unchanged over the previous month, market conditions for DB pension schemes are significantly more favourable today than they were a year ago. XPS’s DBUK funding tracker estimates funding improvements of c.£270bn in aggregate over the last year driven by the significant changes in long-term inflation and interest rate expectations. However, individual schemes will be impacted differently. With some relative stability in market conditions, it is important that schemes assess their funding position and opportunities to re-shape their long-term strategies.”
James Jones-Tinsley, Chartered Financial Planner and Self-Invested Pensions Technical Specialist at Barnett Waddingham: “It seems inflation is finally moving in the right direction; but policy makers and state pensioners will be holding onto their sighs of relief, as inflation is yet to hit single digits.
“September’s inflation figure should, under the current policy, dictate the state pension for the 2024 tax year. Pensioners should be hoping for a return to a more feasible rate of inflation by then, to enable the Government to uphold the triple lock and secure a comfortable state pension increase next April. If inflation is still notably high, upholding the lock would look financially untenable. Of course, this is in the Government’s political best interest too; unless their hand is forced by the economic reality, they won’t want to make any changes until after a general election.”
Romi Savova, CEO at PensionBee, commented: “Those hoping for relief from persistent inflation will be disappointed to see it fail to drop to single-digit levels last month. High inflation is hard to cope with day-to-day, but for savers trying to build long-term wealth, it is even more difficult to meet future retirement goals. Not only is it challenging to find the spare cash to make contributions, but it also makes it harder to generate a ‘real’ return above inflation, so the purchasing power of one’s pension is decreased.
For anyone already drawing an income from their pension, coping with inflation on a finite pot of money can be stressful. The recent rise in the State Pension should provide some welcome support for pensioners, but as high inflation persists, covering the basics continues to be challenging for all, but particularly those on low, limited incomes.”
James Lynch, Fixed Income investment manager at Aegon Asset Management: “UK inflation today fell from 10.4% to 10.1% but higher than economist forecasts. Food inflation was once again higher at 19.1% up from 18% one month ago along with energy at 40.5%. The overall picture is that this number is higher than what the Bank of England were expecting by 0.9%. However on their preferred measure of core services it was pretty much in line at 6.6%.
“What does this mean? Short term the market will push up interest rate forecasts and the BoE will feel under pressure to deliver another 25bps increase in May to take rates to 4.5%, especially after the wage data being revised higher by the ONS yesterday.
“Longer term? The reality is the BoE cannot control food or energy prices, and should be forward looking on the inflation picture given the lags in which monetary policy works. And looking forward there is nothing in here to suggest that inflation will not be a lot closer to 2% target come the end of the year than today’s double digit number.
“I would not jump to the conclusion that interest rates need to settle at a higher level in the long term of that back of this number. The fall in inflation should start in earnest next month as the energy base effects kick in and we could see a headline CPI number with a 7% handle.”
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