For the first time in 35 years UK inflation has fallen to its lowest rate ever to 0.5%. Is this a good thing, or a bad thing? And how will it affect what we do?
When it comes to consumers, the record low inflation rate is undoubtedly a good thing. It gives them a greater level of purchasing power and consumer spending. In an era of economic downturn where people felt they had less money and hampered by expensive goods and products this low inflation encourages them to spend more. Consumers splashing the cash helps keep the economy strong.
For the past two years the potential rise in interest rates has been suggested but it seems as though this will remain low with no prospective rate rise until 2016. This is good news for homeowners; it keeps mortgage payments lower, gives them greater breathing space to spend their money on leisure pursuits and activities. It encourages them to eat out or travel.
The UK economy looks good. Recent economic reports have shown a rise in retail sales which shows consumers are feeling confident in spending their hard-earned cash on the high street. Urban retail outlets are looking at expanding their areas and boosting their high street offer; developments in areas like Covent Garden and its popularity among retail tenants. Business is beginning to prosper, and in a serious way.
It isn’t just in the retail marketplace. The housing market is also regaining its strength. The reform of stamp duty has encouraged movement in the marketplace again and is suggesting a return to a buoyant property sector.
The low inflation rate has also meant good news for motorists. The recent drop in petrol prices has been thanks to low inflation and has been welcomed by both families and businesses. Many have to travel by car and with no alternative have seen rising petrol prices eat into their monthly budget. The lower petrol prices, gives these people a boost but is also good news for those who are using it as an excuse to travel more. The reduced petrol prices can encourage foot flow in certain locations which might have been in decline because people didn’t want to drive there. This helps to stimulate the economy. More people travelling is inevitably positive for a company like Clarendon as it means more people are looking to stay and visit London, and will inevitably look for somewhere to stay.
Lower petrol prices, has a direct consequence on the price of food being sold for in supermarkets. Competitive food pricing has been a key selling point for many supermarkets who can take advantage of cheaper petrol prices and delivery costs and therefore pass the savings onto their customers. These price reductions have a double effect as while they are caused by lower inflation they have a knock on effect causing inflation to stay low.
Record low inflation is often pitched as being a bad thing but it can be positive in some areas. Everyday purchases have dropped in price which means that, while wages in some cases remain unchanged, people do not feel that they are unable to afford treats or retail items. The economy is showing signs of growth with increased employment and new business. At Clarendon, knowing our success relies on a buoyant and confident business market, we welcome the renewed confidence low inflation is offering.