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UK faces Christmas squeeze as inflation hits 3.1%, outpacing wages – business live UK faces Christmas squeeze as inflation hits 3.1%, outpacing wages – business live
(35 minutes later)
Right, time for a recap...via our own Larry Elliott:
Britain’s cost of living squeeze has intensified after the annual rate of inflation hit a near six-year high of 3.1% in November.
Figures from the Office for National Statistics (ONS) showed dearer computer games and a smaller fall in airfares than a year ago were two factors behind the unexpected increase from 3% in October.
The small increase in the cost of living will force Mark Carney, the governor of the Bank of England, to write a letter to the chancellor, Philip Hammond, explaining why Threadneedle Street has failed to keep inflation within one percentage point of the government’s 2% target.
A breakdown of the ONS data showed food prices up by 4.1% on a year ago, with transport costs rising by 4.5% and clothing and footwear up by 3%.
The fall in the value of the pound since the EU referendum in June 2016 has been the main factor behind the jump in the annual inflation rate from 1.2% in November 2016 to its highest level since March 2012.
City analysts believe inflation is close to a peak but evidence that there may be more inflationary pressure in the pipeline emerged from separate ONS figures for producer prices, which measure the cost of the fuel and raw materials used by industry and the price of goods leaving factory gates.
In November, fuel and raw material bills for manufacturers were 7.3% higher than a year ago, up from 4.8% in October, while factory gate prices rose by 3%, up from 2.8% in October.
More here:
NIESR’s head of UK macroeconomic forecasting, Amit Kara, fears that British workers’ pay packets will remain under the cosh for some time:
“We expect inflation to peak at current levels in the final quarter of this year before dropping back to the target rate by mid-2019. The Bank will in our view raise the policy rate every six months until the policy rate reaches 2% by mid-2021, with the next increase in May.
Wage growth is likely to remain under pressure as a result”.
The energy market has been rocked by a major explosion at Austria’s main gas line.
One person has reportedly been killed in the blast, which occurred around 8.45am local time, with 18 people injured. The pipeline supplies gas to Italy, which has been forced to declare a state of emergency:
This comes a day after a crack forced the closure of a major oil pipeline from the North Sea (as covered earlier this morning).
This supply disruption has sent the cost of natural gas for delivery today into Britain soaring , by up to 40%:
UK spot natural gas prices just hit highest since 2013, rising as much as 40 per cent to 95p per therm.Triple whammy:* UK Forties Pipeline System shut potentially for weeks* Explosion at Austria's main gas import hub* Severe cold snap hitting country (River Clyde has frozen) pic.twitter.com/lqGpLE7vmm
Just in: Inflation may be building in America too.
Producer prices (what companies charge for their wares) rose by 0.4% last month, faster than expected. On an annual bases, producer prices are up by over 3%.
*U.S. NOV. PRODUCER PRICES INCREASE 3.1 % FROM YEAR AGO
US Producer Price Index up 0.4% in Nov, vs 0.3% increase expected https://t.co/Msg3MvkXHn
Instead of battling inflation, Bank of England governor Mark Carney has been busy fighting another noble course - climate change.
Our economics editor Larry Elliott explains:
Bank of England governor Mark Carney has announced growing global support for a new initiative designed to help pave the way to a low-carbon economy by persuading firms to come clean about their exposure to climate-change risks.
Speaking at the One Planet Summit in Paris, Carney said he was delighted that 237 companies with a combined market capitalisation of $6.3tn (£4.7tn) were now backing the scheme.
Britain’s six leading banks – Lloyds, Barclays, HSBC, Royal Bank of Scotland, Santander and Standard Chartered – have all supported the Task Force on Climate-Related Financial Disclosures, set up by Carney in his role as chairman of the Financial Stability Board, an international body charged with preventing a repeat of the 2008 banking crisis.
Under the plan, companies pledge to use their financial reports to disclose their direct and indirect exposure to global warming under a range of different scenarios. Banks are obliged to say how much they have lent to companies with climate-related risks.
ONS Head of Inflation Mike Prestwood has summed up this morning’s data:ONS Head of Inflation Mike Prestwood has summed up this morning’s data:
“CPI inflation edged above 3% for the first time in nearly six years, with the price of computer games rising and airfares falling more slowly than this time last year. These upward pressures were partly offset by falling costs of computer equipment.“CPI inflation edged above 3% for the first time in nearly six years, with the price of computer games rising and airfares falling more slowly than this time last year. These upward pressures were partly offset by falling costs of computer equipment.
“The prices of raw materials and goods leaving factories continued to increase as oil and petrol prices continued to rise.“The prices of raw materials and goods leaving factories continued to increase as oil and petrol prices continued to rise.
“Annual rises in house prices and rents continued to slow, with London seeing house price falls for the second month running.”“Annual rises in house prices and rents continued to slow, with London seeing house price falls for the second month running.”
While inflation has risen, house price inflation in the UK has dipped slightly - due to a slowdown in London.While inflation has risen, house price inflation in the UK has dipped slightly - due to a slowdown in London.
The average house price increased by 4.5% in the year to October 2017, down from 4.8% in September 2017.The average house price increased by 4.5% in the year to October 2017, down from 4.8% in September 2017.
In London, prices were only 2.1% higher than a year ago.In London, prices were only 2.1% higher than a year ago.
Rising inflation is a severe blow to families who rely on state benefits.Rising inflation is a severe blow to families who rely on state benefits.
Many of those benefits are currently frozen under the government’s austerity programme, which means they are shrinking in real terms.Many of those benefits are currently frozen under the government’s austerity programme, which means they are shrinking in real terms.
Ashwin Kumar, chief economist at the Joseph Rowntree Foundation, say the government should rethink its policy:Ashwin Kumar, chief economist at the Joseph Rowntree Foundation, say the government should rethink its policy:
“Falling wages and frozen benefits mean that many families will struggle to find the money to keep up with rising inflation. Today’s update means that a family of four on the minimum wage will be £500 worse off every year due to the benefit freeze.“Falling wages and frozen benefits mean that many families will struggle to find the money to keep up with rising inflation. Today’s update means that a family of four on the minimum wage will be £500 worse off every year due to the benefit freeze.
“The cost of basic essentials is rising even faster than the headline inflation figure: food is up 4.1% and energy 6.4% in the last year. This means people on lower incomes are being hit particularly hard as they need to use more of their income to cover these costs.“The cost of basic essentials is rising even faster than the headline inflation figure: food is up 4.1% and energy 6.4% in the last year. This means people on lower incomes are being hit particularly hard as they need to use more of their income to cover these costs.
“The benefits freeze was a policy introduced at a time of zero inflation. The Government should help people in poverty by ending the freeze and keeping benefits in line with the rising cost of living.”“The benefits freeze was a policy introduced at a time of zero inflation. The Government should help people in poverty by ending the freeze and keeping benefits in line with the rising cost of living.”
Mark Carney needs to give his letter to Philip Hammond plenty of attention, as parliament’s Treasury committee are planning to grill him about it next year.Mark Carney needs to give his letter to Philip Hammond plenty of attention, as parliament’s Treasury committee are planning to grill him about it next year.
Nicky Morgan MP, Chair of the Treasury Committee, says:Nicky Morgan MP, Chair of the Treasury Committee, says:
“Inflation rising faster than earnings is squeezing household finances, driven in part by rising prices for household essentials such as food and transport.“Inflation rising faster than earnings is squeezing household finances, driven in part by rising prices for household essentials such as food and transport.
“The Governor will now have to write to the Chancellor to explain why the Bank has missed its inflation target by more than one per cent, and what action the MPC intends to take.“The Governor will now have to write to the Chancellor to explain why the Bank has missed its inflation target by more than one per cent, and what action the MPC intends to take.
“The Treasury Committee will scrutinise that letter in its regular hearings with the Bank.”“The Treasury Committee will scrutinise that letter in its regular hearings with the Bank.”
The TUC have created a useful, and frankly depressing, chart showing how food prices have risen over the last year.The TUC have created a useful, and frankly depressing, chart showing how food prices have risen over the last year.
If you're curious about food inflation, here's a (way too) detailed chart showing which food prices have risen the most over the past 12 months.A short summary: - Consider ditching the butter and buying margarine instead- Avoid fish- Just eat pizza pic.twitter.com/dOKAGaBlzmIf you're curious about food inflation, here's a (way too) detailed chart showing which food prices have risen the most over the past 12 months.A short summary: - Consider ditching the butter and buying margarine instead- Avoid fish- Just eat pizza pic.twitter.com/dOKAGaBlzm
Disappointingly, we must wait until February 2018 to see Mark Carney’s letter to Philip Hammond explaining why inflation has missed the government’s 2% target.Disappointingly, we must wait until February 2018 to see Mark Carney’s letter to Philip Hammond explaining why inflation has missed the government’s 2% target.
But how can the Bank of England governor defend this failure?But how can the Bank of England governor defend this failure?
Craig Inches, Head of Short Rates and Cash at Royal London Asset Management, thinks Carney should come out fighting:Craig Inches, Head of Short Rates and Cash at Royal London Asset Management, thinks Carney should come out fighting:
“With Brexit uncertainty still weighing heavy on the Bank’s forecasts, we think Mr Carney’s words are much more likely to be a robust defence of the Bank’s existing position than any plea to the Chancellor to forgive the MPC for its sins in allowing inflation to run away with itself.”“With Brexit uncertainty still weighing heavy on the Bank’s forecasts, we think Mr Carney’s words are much more likely to be a robust defence of the Bank’s existing position than any plea to the Chancellor to forgive the MPC for its sins in allowing inflation to run away with itself.”
Yael Selfin, chief UK economist at KPMG, reckons the Bank of England will feel justified in having raised interest rates last month:Yael Selfin, chief UK economist at KPMG, reckons the Bank of England will feel justified in having raised interest rates last month:
“Consumer prices rose relatively strongly in November, bringing inflation to 3.1% from a year earlier, and requiring the Governor of the Bank of England to write a letter to the Chancellor explaining the divergence of over 1 per cent from the inflation target.“Consumer prices rose relatively strongly in November, bringing inflation to 3.1% from a year earlier, and requiring the Governor of the Bank of England to write a letter to the Chancellor explaining the divergence of over 1 per cent from the inflation target.
The rise is likely to embolden earlier actions by the Monetary Policy Committee to raise rates for the first time in over ten years last month.The rise is likely to embolden earlier actions by the Monetary Policy Committee to raise rates for the first time in over ten years last month.
Economist Shaun Richards argues that Carney actually caused the jump in inflation, by easing monetary policy after the Brexit vote:Economist Shaun Richards argues that Carney actually caused the jump in inflation, by easing monetary policy after the Brexit vote:
Dear Phillip Hammond Inflation is above 3% because my colleagues and I cut Bank Rate and added £60 billion to QE in August 2016. Sorry. All the best. Mark CarneyGovernor of the Bank of EnglandB45 0HF BirminghamDear Phillip Hammond Inflation is above 3% because my colleagues and I cut Bank Rate and added £60 billion to QE in August 2016. Sorry. All the best. Mark CarneyGovernor of the Bank of EnglandB45 0HF Birmingham
Gavin Jackson of the Financial Times thinks Carney should simply blame the exchange rate:Gavin Jackson of the Financial Times thinks Carney should simply blame the exchange rate:
Dear Mr Hammond,Please see the value of sterling.Yours,Mark CarneyDear Mr Hammond,Please see the value of sterling.Yours,Mark Carney
Edmund Greaves of Moneywise thinks the whole practice is rather outdated:Edmund Greaves of Moneywise thinks the whole practice is rather outdated:
Writing it in a letter seems so old fashioned. Mr Carney should send the Chancellor a Snapchat DM.Writing it in a letter seems so old fashioned. Mr Carney should send the Chancellor a Snapchat DM.
Peter Dowd MP, Labour’s Shadow Chief Secretary to the Treasury, argues the Conservative government must take the blame for allowing wage growth to lag behind inflation.Peter Dowd MP, Labour’s Shadow Chief Secretary to the Treasury, argues the Conservative government must take the blame for allowing wage growth to lag behind inflation.
Dows says:Dows says:
“Today’s rise in inflation to its highest level in over five-and-half years is extremely concerning, and once again reveals that after seven years of Tory economic failure, this Government has no answers to the problem of wages continuing to fail to keep up with prices.“Today’s rise in inflation to its highest level in over five-and-half years is extremely concerning, and once again reveals that after seven years of Tory economic failure, this Government has no answers to the problem of wages continuing to fail to keep up with prices.
“We shouldn’t forget that there will be millions of working families who will be struggling this Christmas already as a direct result of government policies such as the benefits freeze and the public sector pay cap; this is a further reminder of just how bad this double whammy of rising prices and Tory austerity policies will be this month for them.“We shouldn’t forget that there will be millions of working families who will be struggling this Christmas already as a direct result of government policies such as the benefits freeze and the public sector pay cap; this is a further reminder of just how bad this double whammy of rising prices and Tory austerity policies will be this month for them.
“The next Labour government will ensure working people’s living standards are protected with a Real Living Wage of £10 per hour, ending the public sector pay cap, and by building a high wage, high skill economy that works for the many, not the few.”“The next Labour government will ensure working people’s living standards are protected with a Real Living Wage of £10 per hour, ending the public sector pay cap, and by building a high wage, high skill economy that works for the many, not the few.”
The UK’s financial secretary to the Treasury, Mel Stride, says he understands that Britons are suffering from rising inflation:The UK’s financial secretary to the Treasury, Mel Stride, says he understands that Britons are suffering from rising inflation:
“Inflation is expected to fall over the coming year, but I recognise families are feeling a squeeze now.“Inflation is expected to fall over the coming year, but I recognise families are feeling a squeeze now.
We are determined to help, which is why the Autumn Budget cut income tax, boosted basic pay by more than inflation and froze alcohol and fuel duties”We are determined to help, which is why the Autumn Budget cut income tax, boosted basic pay by more than inflation and froze alcohol and fuel duties”
The pound initially jumped when the inflation figures were released, as foreign exchange traders swiftly calculated that it made an interest rate rise more likely.The pound initially jumped when the inflation figures were released, as foreign exchange traders swiftly calculated that it made an interest rate rise more likely.
But that effect didn’t last long.But that effect didn’t last long.
Sterling is now down around 0.15% against the US dollar and the euro.Sterling is now down around 0.15% against the US dollar and the euro.
Ranko Berich, head of market analysis at Monex Europe, says City traders are focusing on Brexit again.Ranko Berich, head of market analysis at Monex Europe, says City traders are focusing on Brexit again.
In particular, comments from European Parliament chief Guy Verhofstadt criticising UK Brexit secretary David Davis:In particular, comments from European Parliament chief Guy Verhofstadt criticising UK Brexit secretary David Davis:
“Sterling’s gains from the release were extremely short lived, and the pound is now once again under pressure after Guy Verhofstadt made comments about David Davis scoring an “own goal” on the Brexit deal. The last hour of price action demonstrates quite clearly that for sterling, Brexit is still the only game in town.”“Sterling’s gains from the release were extremely short lived, and the pound is now once again under pressure after Guy Verhofstadt made comments about David Davis scoring an “own goal” on the Brexit deal. The last hour of price action demonstrates quite clearly that for sterling, Brexit is still the only game in town.”
Remarks by David Davis that Phase one deal last week not binding were unhelpful & undermines trust. EP text will now reflect this & insist agreement translated into legal text ASAP #BrexitRemarks by David Davis that Phase one deal last week not binding were unhelpful & undermines trust. EP text will now reflect this & insist agreement translated into legal text ASAP #Brexit
Oops. European Parliament Brexit pointman Verhofstadt says David Davis comments on deal were 'own goal', there will now be 'hardening of position' of EU leaders at summit and EPOops. European Parliament Brexit pointman Verhofstadt says David Davis comments on deal were 'own goal', there will now be 'hardening of position' of EU leaders at summit and EP
Britain’s inflation squeeze may actually intensify over the festive period, warns Ben Edwards, Portfolio Manager at investment giant BlackRock:Britain’s inflation squeeze may actually intensify over the festive period, warns Ben Edwards, Portfolio Manager at investment giant BlackRock:
UK households may have to continue to endure higher costs in some segments over Christmas particularly as food retailers continue to pass on higher producer prices and airfares take their normal seasonal trip north.UK households may have to continue to endure higher costs in some segments over Christmas particularly as food retailers continue to pass on higher producer prices and airfares take their normal seasonal trip north.
But Edwards also predicts that inflation will ‘drift lower” in 2018.But Edwards also predicts that inflation will ‘drift lower” in 2018.
That’s partly because the impact of the weak pound will eventually drop out of the data (as inflation compares today’s prices against the same items a year ago).That’s partly because the impact of the weak pound will eventually drop out of the data (as inflation compares today’s prices against the same items a year ago).
There’s little chance of UK wages catching up with inflation in the next few months, warns Andrew Sentance, senior economic adviser at PwC.There’s little chance of UK wages catching up with inflation in the next few months, warns Andrew Sentance, senior economic adviser at PwC.
Sentance also blames the weak pound for pushing up the cost of living, saying:Sentance also blames the weak pound for pushing up the cost of living, saying:
The fall in sterling since the Brexit vote continues to push up the prices of imported goods and the strength of the global economy is also contributing to upward pressure on food and energy prices.The fall in sterling since the Brexit vote continues to push up the prices of imported goods and the strength of the global economy is also contributing to upward pressure on food and energy prices.
“We are probably close to the peak for inflation now, but it will only fall back gradually next year. That means price rises will continue to run ahead of pay growth in the first half of 2018 - continuing the squeeze on real incomes and consumer spending. That is likely to continue to act as a dampener on economic growth in the next few quarters.“We are probably close to the peak for inflation now, but it will only fall back gradually next year. That means price rises will continue to run ahead of pay growth in the first half of 2018 - continuing the squeeze on real incomes and consumer spending. That is likely to continue to act as a dampener on economic growth in the next few quarters.
With inflation rising, shoppers need to be particularly savvy this Christmas, warns Hannah Maundrell, Editor in Chief of money.co.uk.With inflation rising, shoppers need to be particularly savvy this Christmas, warns Hannah Maundrell, Editor in Chief of money.co.uk.
She says people should pay particular attention to rising food costs, or risk a nasty shock at the till.She says people should pay particular attention to rising food costs, or risk a nasty shock at the till.
With inflation now at a 6 year high there’s no escaping the fact the luxury of low inflation is over.With inflation now at a 6 year high there’s no escaping the fact the luxury of low inflation is over.
“The cost of food, non alcoholic beverages, transport and fun activities are creeping up so if you’re not careful your household finances could be stretched.“The cost of food, non alcoholic beverages, transport and fun activities are creeping up so if you’re not careful your household finances could be stretched.
“For many of us prices are rising faster than our wages and we’re in one of the most expensive times of year so budgeting is the key to beating the squeeze on your wallet.“For many of us prices are rising faster than our wages and we’re in one of the most expensive times of year so budgeting is the key to beating the squeeze on your wallet.