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UK inflation rate jumps to four-year high of 2.9% – business live
Wage squeeze worsens as UK inflation rate jumps to 2.9% – business live
(35 minutes later)
10.17am BST
10:17
TUC: Government must act
TUC General Secretary Frances O’Grady says the government must respond to the wage squeeze by ending the 1% cap on public sector pay rises:
“The election showed that working people are struggling. And the biggest price rises in four years won’t provide any comfort.
“Working people are still £20 a week off worse, on average, than they were before the crash – and now rising prices are hammering their pay packets again.
“The new government must stop the real wage slide. Ministers must focus on delivering better-paid jobs all around the UK.
“And it’s time to lift the artificial pay restrictions in the public sector. Our hardworking nurses and teachers are long overdue a pay rise.”
UK #inflation rises unexpectedly in May to 2.9%, highest since June 2013 pic.twitter.com/9iz81wPU0J
10.11am BST
10:11
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10.10am BST
10:10
Britains’ household finance squeeze has intensified, warns Ben Brettell, senior economist at financial services group Hargreaves Lansdown:
Today’s numbers from the ONS showed inflation jumped to a fresh four-year high of 2.9%, as a fall in the price of motor fuels failed to offset higher prices for energy, food and recreational goods. Lower air fares also had a downward effect as the Easter holiday drops out of the calculation. Economists had expected the rate to remain at 2.7%.
Wage data out tomorrow is expected to confirm pay is shrinking in real terms, and a report out yesterday from Visa confirms consumers are under pressure, with spending falling 0.8% year-on-year in May.
10.04am BST
10:04
Angela Monaghan
Here’s our news story on today’s inflation report:
UK inflation jumped to a four-year high of 2.9% in May, signalling a sustained fall in living standards as prices rose faster than wages.
The consumer prices index went up from 2.7% in April and has been steadily increasing since the Brexit vote a year ago, which triggered a sharp drop in the value of the pound and pushed up the cost of goods imported from abroad. Inflation was 0.3% in May 2016, a month before the EU referendum.
At 2.9%, inflation is higher than average year-on-year wage growth of 2.1% in the three months to March, putting pressure on household budgets. It is also well above the Bank of England’s 2% target. Economists had expected inflation to stay at 2.7%.
Philip Shaw, an economist at Investec, said inflation was likely to rise further in the coming months, as the weaker pound continues to feed through to higher shop prices.
“Our view is that inflation will rise steadily to a little above 3% by the summer,” he said. “However, should sterling resume an upward trend and energy prices slip further in US dollar terms, there is a chance that inflation remains below the 3% level.”
10.03am BST
10:03
A Treasury spokesperson has responded to the jump in inflation, saying:
‘The government is helping families with the everyday cost of living by keeping taxes low, freezing fuel duty and increasing the National Living Wage.
A typical basic rate taxpayer now pays £1,000 less income tax than in 2010 and increases in the National Living Wage mean £1,400 extra a year for a worker since its introduction.’
9.53am BST
09:53
Here’s more detail from the Office for National Statistics about why inflation jumped to 2.9% last month:
The largest upward effect came from a variety of recreational and cultural goods and services with prices rising, overall, by 0.9% between April and May 2017 compared with a fall of 0.4% a year ago. Within this category the major contribution came from games, toys and hobbies, particularly computer games.
Food prices rose slightly between April and May this year compared with a fall a year ago. The latest rise continues the upward movement observed from late 2016 and comes from a variety of product groups, particularly sugar, jam, syrups, chocolate and confectionery where prices of cartons and boxes of chocolates rose between April and May this year.
Prices for clothing rose by 0.6% between April and May this year compared with a fall of 0.3% a year ago. The upward effect came principally from children’s clothing. Sales patterns may have contributed to the price movements, as the proportion of items on sale fell between April and May this year, having risen a year ago.
Prices for furniture and household goods rose by 1.2% between April and May this year, the largest rise between these two months since 2008. Between the same two months in 2016, prices rose by 0.4%. The main upward contributions came from lounge furniture and household textiles.
There was also a significant upward effect from electricity as further price increases entered the index in May. This is a part of the broader housing and household services heading within which the effect is partially offset by a downward contribution from owner occupiers’ housing costs.
Updated
at 9.54am BST
9.52am BST
09:52
There’s more inflation coming down the pipeline, warns Duncan Weldon of Resolution Group:
Headline UK CPI at 2.9%, core at 2.6%. Both ahead of consensus.
Lower oil & stronger sterling have put a lid on input price inflation - although still running at 11.6%. More pass through to CPI to come. pic.twitter.com/fmvuj9ezhY
9.52am BST
09:52
Inflation is now rising faster than the Bank of England expected, points out Ben Chu of the Independent.
In its May inflation report the Bank of England projected CPI inflation to peak at 2.82% in Q4 2017. We're already above that: pic.twitter.com/3RP1JdicyG
9.46am BST
09:46
Real wages are falling
This chart, from Reuters’ Jamie McGeever, shows the impact of higher inflation on pay packets:
UK inflation rises to 2.9%, a 4-year high.This tightens the squeeze on real earnings, which are now falling at the fastest pace in 3 years. pic.twitter.com/Hi4Eii7eLq
9.44am BST
09:44
The rise in inflation means that the cost of living squeeze has worsened.
Earnings figures due tomorrow are expected to show that basic pay only rose by 2.0% in the last quarter, meaning they won’t have kept pace with inflation.
Updated
at 9.44am BST
9.39am BST
9.39am BST
09:39
09:39
Inflation: the key charts
Inflation: the key charts
This charts hows how the Consumer Price Index has jumped to its highest level since June 2013 (the yellow line).
This charts hows how the Consumer Price Index has jumped to its highest level since June 2013 (the yellow line).
This shows how the cost of living has risen over the last year:
This shows how the cost of living has risen over the last year:
Updated
Updated
at 9.40am BST
at 9.40am BST
9.33am BST
9.33am BST
09:33
09:33
Why inflation rose again
Why inflation rose again
Rising prices for recreational and cultural goods and services (particularly games, toys and hobbies) was the main contributor to the increase in the rate.
Rising prices for recreational and cultural goods and services (particularly games, toys and hobbies) was the main contributor to the increase in the rate.
There were smaller upward contributions from increased electricity and food prices.
There were smaller upward contributions from increased electricity and food prices.
These upward contributions were partially offset by falls in motor fuel prices, and air and sea fares, the latter two influenced by the timing of Easter in April this year.
These upward contributions were partially offset by falls in motor fuel prices, and air and sea fares, the latter two influenced by the timing of Easter in April this year.
9.30am BST
09:30
UK inflation jumps to 2.9%
Breaking! Britain’s inflation rate has jumped to 2.9% in May - a new four-year high.
More to follow....
9.24am BST
09:24
The pound has now crept back over $1.27, a gain of half a cent today.
Nice to see the UK Pound £ nudge its way above US $1.27 this morning #GBP #BoE
9.20am BST
09:20
Economist Rupert Seggins has tweeted some handy charts on inflation, ahead of May’s consumer prices index report (due in around 10 minutes).
This shows how inflation has risen sharply in recent months:
(1/4) UK inflation expected to come in at 2.7%y/y for May, on both the CPI and the CPIH measures. New figures out at 9:30. pic.twitter.com/s3SyzUTX3I
This shows how it can take up to two years for a change in the value of the pound to fully feed into the economy:
(2/4) Sterling has been constantly in the headlines, but the real push into price inflation is still some months away. pic.twitter.com/wahQY9lesu
This shows how global food prices have stopped rising recently:
(3/4) World food price inflation continues to cool, but it takes a couple of months for that to feed through into UK inflation. pic.twitter.com/smH12bdFWy
And this show how the price of oil, in pound, surged after the Brexit vote:
(4/4) Oil price inflation has cooled of pretty rapidly and that should help cool overall UK consumer price rises a bit. pic.twitter.com/YavlO8QIOs
Updated
at 9.21am BST
9.00am BST
09:00
Merlin Entertainment, which runs many of Britain’s largest theme parks and tourists attractions, has warned that demand has fallen since the terror attacks in London and Manchester.
Shares in Merlin have fallen by 3%, to the bottom of the FTSE 100 leaderboard, after it told that City that fewer domestic tourists have been making day trips to its sites - whihc include Alton Towers, the Sea Life centres, and Legoland.
Nick Varney, Merlin’s chief executive, struck a suitably upbeat and uncowed tone, saying:
“The impact of recent terror attacks on our London attractions is unclear at this stage.”
“What is clear, however, is that London has bounced back before and will do again. I have every confidence in the longer term resilience and growth trajectory of the market. London is very much open for business, welcoming visitors from the UK and from around the world to this exciting and vibrant city.”
More here:
8.44am BST
08:44
European stock markets have risen in early trading, with the FTSE 100 gaining around 0.25%.
The pound is also pushing back towards $1.27 ahead of today’s inflation data.
Connor Campbell of SpreadEX believes the City is welcoming the prospect of a softer Brexit (assuming Michael Barnier finally gets some company at the negotiating table):
The pound has woken in a better mood than it did yesterday, lifting 0.2% against the dollar and 0.3% against the euro. The FTSE also looked a bit chirpier, rising 0.3% to sit at 7530.
art of that positivity will stem from this morning’s Reuters poll stating that the risk of a ‘hard’ Brexit has fallen following Theresa May’s failure to secure a Tory majority; that’s not the same as the PM now chasing a ‘soft’ exit from the EU, but it’s still good news for sterling.
8.42am BST
08:42
Cabinet minister Michael Gove, who campaigned to leave the EU last year, has dropped a hint that Britain is inching away from a hard Brexit.
Michael Gove says the government should "proceed with the maximum possible consensus" and take account of Remain voters' concerns #r4today
8.18am BST
08:18
Barnier: Hurry up Britain!
City traders should also take note that Michel Barnier, the EU’s chief Brexit negotiator, is running out of patience.
Barnier has told the Financial Times that Britain risks crashing out of the EU in March 2019 without a deal on future relations if it “wastes” more time.
Barnier pointed out that no progress has been made since Britain triggered Article 50 in March, saying:
“Next week, it will be three months after the sending of the Article 50 letter.
“We haven’t negotiated, we haven’t progressed. Thus we must begin this negotiation. We are ready as soon as the UK itself is ready.”
In a sign of exasperation, Barnier even pointed out that he can’t negotiate with himself!
As Barnier's impatience grows, saying no time to waste in Brexit talks, it's clear UK needs time & clear thinking. https://t.co/KLHMbFf3Si pic.twitter.com/ShdMoJRgRu
Here’s some reaction from our Brussels correspondent, Jennifer Rankin:
"Lots of people underestimated #Brexit consequences" Michel Barnier withering in @ft interview and urges UK hurry up.
Barnier sees no point in extending Brexit talks in March 2019: 'every delay is instability we don't need'.
Updated
at 8.45am BST
8.10am BST
08:10
Analysts at Royal Bank of Canada agree that last week’s election shock has changed the Brexit landscape.
But they’re not sure, though, that Britain can maintain in the Single Market:
Calls for a so-called ‘soft’ Brexit need to be weighed against the reality that both Labour and the Conservatives had manifesto commitments to take the UK out of the Single Market.
In any case, it looks as though the existence of a minority government with less authority in the House of Commons is set to fuel expectations that the UK’s Brexit strategy could be modified in some way.
During the campaign, Theresa May repeatedly said that “no deal was better than a bad deal”. But there are signs that this position is, well, softening.
My colleagues Anushka Asthana and Jessica Elgot reported last night that:
Senior insiders say one of the ideas actively being considered to win backing across parliament was “not to major” on the controversial “no deal is better than a bad deal” position taken by May before the election.
Also under consideration is whether to exclude overseas students from the immigration numbers and even possibly to abandon the target to reduce immigration to the “tens of thousands”. Although nothing has been agreed, any softening of the position on immigration could maximise the chance of a closer economic relationship with the EU.
7.54am BST
07:54
Poll: Hard Brexit risk has fallen
As the dust settles from last week’s general election, economists are coming to the conclusion that Britain is less likely to exit the EU with a ‘hard Brexit’.
That’s according to a new poll of City experts from Reuters, who say:
The chances of Britain ending up outside the single market when Brexit talks are concluded have receded somewhat after last week’s election, although the pound might weaken further against other currencies, a Reuters poll of economists found.
Around two-thirds of the economists polled this week, 33 out of 49, said the chance of a hard Brexit had receded somewhat.
Three said it had receded significantly, while eight said there was no change.
Five said it had increased somewhat and none said increased significantly.
“The prime minister may have to change her stance and approach to Brexit following the election outcome,” said Nikesh Sawjani at Lloyds Banking Group.
More here: Likelihood of hard Brexit recedes after UK election - Reuters poll of economists
7.43am BST
07:43
The agenda: UK inflation could stick at four-year high
Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.
We’re about to find out how much damage the weak pound did to UK household budgets.
New inflation data, due at 9.30am, is expected to show that prices rose by 2.7% year-on-year in May.
That would match the four-year high struck in April, and mean that prices in the shops are rising faster than wages [which only rose by 2.1% in the year to March].
Michael Hewson of CMC Markets says the figures come at a crucial time for the economy:
We get to look under the bonnet of the UK economy this week, at a time when there is rising evidence that the UK consumer having enjoyed a post Brexit shopping spree is now scaling back as inflation starts to eat away at average earnings.
Having started this year at 1.8% CPI inflation hit 2.7% in April and looks set to stay at this level in the latest May numbers which are due out later this morning. Core prices have also jumped sharply since the beginning of the year from 1.6% to 2.4% in April, though we are expected to see a slight moderation in the May numbers to 2.3%.
There could be a silver lining given recent falls in oil prices, which might suggest that we’ve seen a short term plateau for prices which could see prices start to fall back. Input prices in the last few months have shown some signs of falling back, and in both the US and the EU inflation has shown some signs of falling back which would be good news for hard pressed consumers, when wages are currently lagging behind.
We also get a new report on Britain’s housing market, which may show that prices rose at a slower rate in April.
So it will be a busy morning for City traders, who’ll have one eye on the economic data, and the other one on political developments after Britain’s general election.
The pound has clawed back a little ground this morning, after hitting eight-month lows against the euro yesterday. It’s currently trading around €1.132, up 0.2%.
Today, prime minister Theresa May is meeting DUP leader Arlene Foster to discuss a possible deal to prop up a minority Conservative administration.
Last night, the PM apologised to her backbenchers for leading the party into such a mess. Senior colleagues have been making supportive noises, but May still looks weak and vulnerable - even if her premiership isn’t over quite yet.
Also coming up today..
Brussels is expected to announce new proposals for how euro-denominated securities are cleared. That’s important for London, which currently dominates this market but could lose this lucrative (and important) business after Brexit.
City AM has the details:
The City is bracing itself for the European Commission’s proposed changes to the European Market Infrastructure Regulation (Emir), due out on Tuesday morning.
Brussels sources told City A.M. the proposals will include a mechanism giving the EU power to force relocation of euro clearing activity, which is currently dominated by London.
A source familiar with the plans told City A.M.: “The commission is not going for the nuclear option.”
The “nuclear option” would have seen the commission require all clearing of euro-denominated derivatives to take place within the EU...
Today's @cityam front page, by @wturvill: City braced for EU clearing raid https://t.co/gkccp0Cxkj pic.twitter.com/bMa1DK6R4R
European stock markets are expected to rise this morning, with the FTSE 100 index called up 33 points.
