IPSE responds to UK’s return to inflation

Monday 24 August 2015

The Association of Independent Professionals and the Self-Employed (IPSE) has issued a response to the change in the UK’s rate of inflation.

This now stands at 0.1 per cent for July, having risen from zero per cent during June.

IPSE economist Lorence Nye said: “The latest inflation figures are generally positive for the UK economy. Food and fuel prices have continued to fall, meaning more discretionary income for families in the UK.

“One major concern for freelancers will be the continued increase in travel costs. Both rail and air fares have continued to rise and this will directly increase the costs of doing business for self-employed people who tend to work all over the country and abroad.”

However, the cost of transport services has risen by 6.6 per cent between June and July, compared to a 4.6 per cent increase over the same two months in 2014. Contractors who do a lot of work-related travelling can therefore expect to see increased pressure in terms of their transport costs in the future, as the trend for increases looks set to continue.

The upwards movement in transport costs is largely due to air fares becoming more expensive. Despite this, driving remains an economically viable way to travel, as petrol prices rose by 0.1p and diesel prices fell by 2.5p between June and July this year. The cost of the fuels now stands at 116.5p and 118.7p per litre respectively.

As a result of the subdued rate of inflation, the Bank of England recently took the decision to keep interest rates at the historic low of 0.5 per cent for the 78th consecutive month.

Mr Nye explained: “The figure has barely turned positive, so has a long way to go before reaching normality and a point where the Bank of England should consider increasing interest rates. In the Bank’s most recent inflation report they pushed back forecasts for when inflation will pick up, and we believe the path for interest rates should also follow suit.”

However, the recent Markit Household Finance Index revealed that 78 per cent of UK households expect an interest rate hike to be announced within the next 12 months. A total of 48 per cent expect a rise in the coming six months, suggesting that confidence in the economy is higher amongst the general population than in those concerned with the self-employed.

An outgoing member of the Bank of England’s Monetary Policy Committee (MPC), which is responsible for setting the interest rates, offered further support to this view. David Miles, who will shortly leave the MPC, told the BBC he expected interest rates to rise “pretty soon”.

Other leading economists have suggested that waiting too long to raise interest rates could have a negative impact on the UK’s economic recovery.

While it is unclear exactly when interest rates will be increased, contractors are likely to be glad that the UK has avoided the potential dangers of deflation, and can reasonably be confident about the potential for economic recovery.

By Victoria McDonnell

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