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| Wage squeeze worsens as UK inflation rate jumps to 2.9% – business live | Wage squeeze worsens as UK inflation rate jumps to 2.9% – business live |
| (35 minutes later) | |
| 10.49am BST | |
| 10:49 | |
| Hannah Maundrell, editor in chief of money.co.uk, has sent over some advice on coping with inflation: | |
| check you’re on a fixed rate energy tariff (one that guarantees the price you pay per unit) and if not switch | |
| make sure your savings are earning an interest rate that’s higher than the rate of inflation – otherwise they’ll lose buying power over time – you might need to think about high interest current accounts | |
| shop around for food and fuel so you’re not paying any more than you need to | |
| check whether you could cut your mortgage repayments by switching to a fixed rate deal if you’re on your lender’s SVR | |
| 10.38am BST | |
| 10:38 | |
| Child poverty group: End welfare freeze now | |
| The Child Poverty Action Group is urging the government to help struggling families cope with the ravages of inflation. | |
| Chief executive Alison Garnham says: | |
| “Unless there’s an urgent re-think of the current freeze on benefits, the living standards of ordinary families will slip and slide downwards with serious consequences, particularly for children. Families are saying they can’t manage. They need some leeway. Now is the time to ensure that benefits for working and non-working families once again reflect their needs and so rise with inflation. | |
| “The failure to uprate benefits in line with inflation is the single biggest driver behind child poverty rising to 4 million and why it’s set to rise to over 5 million by the end of the new parliament.” | |
| 10.32am BST | |
| 10:32 | |
| This chart from Sky News’s Ed Conway shows how Britain is now experiencing its second real wage squeeze since the financial crisis: | |
| Wages (red) vs inflation (blue). Already the biggest real wage squeeze in two centuries. Now intensifying again. Britons are getting poorer… pic.twitter.com/UdJSuAR6jY | |
| The Telegraph’s Ben Wright points out that inflation is higher than the City, or the Bank of England, expected: | |
| UK inflation hits 2.9% in May. Higher than wage growth (2.1%), consensus fcast (2.7%), & BoE fcast for peak inflation (2.8% in Q4 07) | |
| 10.23am BST | |
| 10:23 | |
| Maike Currie, investment director for personal investing at Fidelity International, says inflation has hit “eye-watering” levels. | |
| “Rising prices coupled with lacklustre earnings growth means our wages aren’t keeping up with the rising cost living. Our real income are being squeezed and we’re witnessing this impacting UK consumer spending, which fell for the first time in nearly four years in May as consumers tightened their belts. This is bad news for an economy which relies on confident consumers spending on goods and services - already we are seeing signs of a stagnating economy as confidence among companies and consumers falter. Election result paralysis will only add to the UK economy’s woes. | |
| Readers may remember that inflation was rather higher back in the 1970s -- but the key point is that wages aren’t keeping pace. | |
| Currie explains why inflation is a concern: | |
| “Inflation never seems like a problem until suddenly it is and while it may be good news for borrowers, as it erodes the value of their debts, it has detrimental implications for savers, investors and retirees, chipping away at the value of future interest and dividend payments and eroding the worth of your capital pot. Once pricing pressures become entrenched, consumers’ feel the pain, businesses don’t invest and the stock market gets worried. | |
| 10.17am BST | 10.17am BST |
| 10:17 | 10:17 |
| TUC: Government must act | 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: | 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. | “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. | “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. | “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.” | “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 | UK #inflation rises unexpectedly in May to 2.9%, highest since June 2013 pic.twitter.com/9iz81wPU0J |
| 10.11am BST | 10.11am BST |
| 10:11 | 10:11 |
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| Guardian Business has launched a daily email. | Guardian Business has launched a daily email. |
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| 10.10am BST | 10.10am BST |
| 10:10 | 10:10 |
| Britains’ household finance squeeze has intensified, warns Ben Brettell, senior economist at financial services group Hargreaves Lansdown: | 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%. | 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. | 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 | 10.04am BST |
| 10:04 | 10:04 |
| Angela Monaghan | Angela Monaghan |
| Here’s our news story on today’s inflation report: | 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. | 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. | 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%. | 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. | 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.” | “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 | 10.03am BST |
| 10:03 | 10:03 |
| A Treasury spokesperson has responded to the jump in inflation, saying: | 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. | ‘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.’ | 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 | 9.53am BST |
| 09:53 | 09:53 |
| Here’s more detail from the Office for National Statistics about why inflation jumped to 2.9% last month: | 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. | 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. | 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 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. | 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. | 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 | Updated |
| at 9.54am BST | at 9.54am BST |
| 9.52am BST | 9.52am BST |
| 09:52 | 09:52 |
| There’s more inflation coming down the pipeline, warns Duncan Weldon of Resolution Group: | 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. | 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 | 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 | 9.52am BST |
| 09:52 | 09:52 |
| Inflation is now rising faster than the Bank of England expected, points out Ben Chu of the Independent. | 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 | 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 | 9.46am BST |
| 09:46 | 09:46 |
| Real wages are falling | Real wages are falling |
| This chart, from Reuters’ Jamie McGeever, shows the impact of higher inflation on pay packets: | 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 | 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 | 9.44am BST |
| 09:44 | 09:44 |
| The rise in inflation means that the cost of living squeeze has worsened. | 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. | 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 | Updated |
| at 9.44am BST | 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. |