UK inflation eased month-on-month in October, to the surprise of many, as the sharp fall in sterling following the Brexit result was expected to keep inflation rising for some time to come. 
The consumer price index (CPI) eased back to 0.9 per cent from the 1 per cent figure in September, below general market consensus that it would rise to 1.1 per cent.
Ian Forrest, investment research analyst at The Share Centre, said: “Today’s UK inflation figures have rather confounded market expectations for a sharp rise in prices following the fall in the pound since the EU referendum.”
After the vote in June, sterling dropped 10 per cent in the following few days and has continued its downward trajectory, falling 15.27 per cent over the course of the year.
Performance of sterling vs US dollars in 2016
Source: FE Analytics
Rising inflation has widely been expected to be a driving factor in the coming months and moving into 2017 as the UK relies heavily on exports.
The price of clothing and some games and toys rose less than last year but were offset partially by a rise in the cost of fuel and furniture.
Forrest adds that today’s fall in inflation is a contrast to the Bank of England’s recent forecast that inflation will rise to 2.7 per cent by the end of next year, although the ONS did report today that producer input inflation rose 12.2 per cent in October, up from 7.3 per cent in September.
FE Trustnet looks at some of the reactions to inflation falling in October and what investors should glean from this.
Zurich – We still expect inflation to pick up in the coming months
Alistair Wilson, head of retail platform strategy at Zurich, says it is important for investors to look at the wider picture, not just one set of numbers.
“Inflation may have held relatively steady, but it has been following an upward trend over the last few months, and looks set to continue,” he said.
“Today’s October inflation figures were lower than expected due at least in part to the timing of clothing sales deals on the high street.
“Despite this we still expect inflation to pick up in coming months as the impact of this year’s decline in sterling becomes more apparent.
“Indeed other data published today, which showed a big rise in producers’ input prices in October, pointed to higher inflation already in the pipeline.”
Wilson says that any increase in daily expenses such as food prices or petrol adds strain to the family budgets, which can cause problems for those trying to balance financial priorities with saving over a longer period.
Therefore, making the right investment choice is more important than ever in the current environment, he adds, with consistent saving the key.
Hermes – Ignore inflation at your peril
Tommaso Mancuso, head of multi asset at Hermes Investment Management, says the post-Brexit world has meant investors should pay more attention to inflation as we head into 2017.
“In the short term, we expect the rate of inflation to continue to drift up, buoyed by the stabilisation of commodity prices and sterling’s fall,” he added.
“Over the medium term, both the likely expansion of fiscal policies and central bank willingness to tolerate inflation overshoots could further fuel inflationary pressure.
“The sharp reaction of government bonds to Donald Trump’s victory is indicative of how sensitive global assets can be to changes in inflation expectations and a reminder of the importance of carrying some degree of inflation protection at all times.”
Scottish Friendly - The surprise fall in inflation just a pause for breath
Calum Bennie, savings expert at Scottish Friendly, says despite the fall in inflation, savers and consumers should act now before prices pick up again.
Bennie commented: “The Bank of England has repeatedly warned that inflation will spike as currency effects take hold, and with interest rates not looking likely to budge anytime soon, savers need to take action now and consider ways to make their money work harder.”
He adds that consumers should try and balance the higher spending associated with this time of year with the expectation of price rises to come in the New Year.
“There is no time like the present to be putting some money away, no matter how small.”
Lex Deak, chief executive and co-founder at OFF3R, adds the fall has provided a brief relief for traditional investors.
“However, investors have faced a tough year of interest rates hitting record lows, inflation rates set to increase to 4 per cent next year and the economy suffering from Brexit uncertainty.”
GKFX – CPI reading will be seen as easing the pressure on the Bank of England
James Hughes, chief market analyst at GKFX, says the news will be welcomed by the BoE, which had been under pressure to act to curb the prospect of higher inflation readings.
“Inflation is a key battle ground when it comes to Brexit, BoE governor Mark Carney has already warned that inflation could break above the target rate of 2 per cent in 2017 as sterling weakness continues on the back of growing uncertainty over Brexit,” he said.
However, he adds that despite the lower reading, it will not take away from the upside inflationary pressure that the lower pound will bring.
“With worries also circulating about the validity of Brexit, and a potential parliamentary vote around article 50 we are definitely nowhere near the end of the newsflow,” Hughes said.
“Added newsflow around Brexit means that there is still added downside pressure for sterling, and with the lower pound the key driver for inflation than we have to be looking at higher readings in the coming months. “