UK experiences deflation… But not for long

This week the Office of National Statistics has reported that UK inflation, as measured by the Consumer Price Index, fell by 0.1% in the year to April 2015, compared to no change (0.0%) in the year to March 2015, representing the first time the UK has experienced deflation since records began. Major drivers have come from transport services, namely air and sea fares, exacerbated by the timing of Easter.

Jason Hollands, Managing Director, Business Development and Communications at Tilney Bestinvest comments:

“This looks likely be a temporary blip and it is worth pointing out that Retail Price Inflation remains positive - albeit low - at 0.9% over the same period. The evaporation of inflation this year has in large part been a result of the significant decline in the oil price since last summer as the Saudi’s have increased production to squeeze the US shale oil industry. However, the oil price has rebounded 40% off its January low, so if anything in the short term the markets have started to worry about the return of inflationary pressures, which appears to be a factor in the recent spike in yields in the global bond markets, especially German bunds.

That said, looking further out the rally in oil and other commodity prices may itself prove overdone. There is a big mismatch between supply and expect growth in demand for oil, with the US Energy Information Administration recently estimating global oil demand will grow by just 1.3 million barrels a day next year, way below the 2.89 million level seen in 2010 after the last significant oil price slump – a pace of demand growth that won’t absorb the overhang in supply given the soaring output from Saudi Arabia. With talks continuing to secure an agreement to limit Iran’s nuclear ambitions, a final agreement this summer could also see a material increase in Iranian supply to add to the current over supply.

And then there is China, which continues to grapple with a structural economic slowdown and attempts to shift its economic model away from credit financed, commodities-intensive infrastructure development, in favour of growing the Chinese consumer market and service sectors. That should lead to continued weakness in the prices of many resources and when combined with the release of excess inventory by China, this risks exporting deflation pressures around the globe.

On balance therefore, while deflation looks like it will be temporary and in the near term inflation should rise, when you look through all of this, the inflation outlook is benign.”

- ENDS -

Important Information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.

Press contacts:

Jason Hollands
0207 189 9919
07768 661382
roisin.hynes@tilneybestinvest.co.uk

Matthew Gray
020 7189 2492
matthew.gray@tilneybestinvest.co.uk

About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

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