Clothing and footwear bargains were enough to slow inflation rise to 0.3% in November.
Extensive Black Friday discounting by Britain's clothing and footwear chains was revealed today after official figures showed UK inflation slowed to just 0.3% last month.
The fall from 0.7% in October was bigger than economists had been forecasting and leaves the consumer prices benchmark close to August's five-year low of 0.2%.
The need for big Black Friday discounts to drum up trade during England's lockdown meant clothing and footwear prices were 3.6% lower in the biggest annual decline in a decade. There was also a bigger-than-expected fall in food price inflation.
While good news for shoppers, anecdotal evidence suggested that chains were forced to spread out their offers across November and not just for the Black Friday week. It comes after a brutal period for the sector, with Topshop owner Arcadia among those going into administration.
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UBS economist Anna Titareva said it was unusual at this time of the year for clothing to represent the largest negative contribution to inflation.
“Generally, clothing prices have not followed the usual seasonal pattern this year, with heavier discounting during the spring mobility restrictions and smaller increases over the summer.”
This kind of disruption is making it harder to predict a path for inflation. However, with global commodity prices rising following recent vaccine breakthroughs there's every chance inflationary pressures will pick up next year. Comparisons with last year's emergency pandemic measures will also distort the inflation figure from next spring.
Morgan Stanley has pointed out that central banks doing whatever necessary to create jobs and return employment to pre-Covid-19 levels will eventually push wages upwards, lifting inflation.
But for now there appears to be too much slack in the UK economy for inflation to be a worry.
UBS said recently: “The pandemic has led to a major business cycle reset that should allow for significantly above-potential growth in 2021. We estimate the global output gap at slightly over 4% in Q4 2020 and project it to decline to 1.7% by end-2022.
“That slack should keep inflation contained and preserve monetary accommodation for another year.”
The Bank of England's monetary policy committee (MPC) is due to meet on Thursday. But the Brexit stalemate means there's unlikely to be any change in its approach following November's decision to expand quantitative easing purchases by an additional £150 billion.
Titareva expects the Bank to keep a cautious tone and reiterate its commitment to act if required. She added:
“The MPC's baseline currently assumes a comprehensive trade agreement between the UK and EU. Relatively tight mobility restrictions in the remainder of 2020 and early 2021 and Brexit related disruptions, even in a deal scenario, are likely to weigh on growth.”
Titareva adds, however, that the Bank will cut its base rate into negative territory in the event of a no-deal Brexit scenario.
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