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UK inflation falls to 13-month low, sending pound sliding – business live UK inflation falls to 13-month low, sending pound sliding – business live
(35 minutes later)
Professor Costas Milas of the University of Liverpool agrees that the case for the Bank of England raising interest rates in August is fading.
He explains:
The 2.4% CPI inflation reading for April is already (slightly) lower than the most likely outcome (the so called ‘mode’) of 2.43% predicted for the second quarter of 2018 by the MPC’s Inflation Report only a few weeks earlier.
If CPI inflation falls further in May, they will most likely have to revise their inflation forecasts downwards which will obviously make the case for an August interest rate hike even weaker.
Newsflash: Investors have slashed the chances of a UK interest rate hike in August to just a third:
(Bloomberg) MARKET IMPLIED PROBABILITY OF A BANK OF ENGLAND RATE HIKE BOEWATCH BY AUGUST FALLS TO A THIRD FROM NEARLY HALF EARLIER THIS WEEK
That underlines why the pound has fallen -- lower interest rates mean there is less incentive to hold sterling.
David Lamb, head of dealing at Fexco Corporate Payments, says the City is right:
“Britain’s next interest rate rise hasn’t just been kicked into the long grass, it has been sent sailing right out of the park.
“With consumer inflation continuing to fall – even in the face of rising fuel prices – the Bank of England is running out of reasons to raise rates.
“By contrast it has every reason to keep rates on hold. With CPI now falling to within touching distance of the Bank’s 2% target of its own accord, the last thing Mark Carney and Co will want to do is upset the faltering economy with a rate hike.
Predictably, the government has welcomed today’s decline in in inflation, while the opposition points out that real wages are still too low.
For the government, financial secretary to the Treasury Mel Stride says:
“Inflation falling and real wages on the rise means more money in people’s pockets. We are helping families earn more and keep more of what they earn by cutting taxes for 31 million people and increasing the National Living Wage, worth an extra £2,000.
“We must continue to ensure people’s pay outstrips inflation and build an economy that truly works for everyone.
But Peter Dowd MP, Labour’s Shadow Chief Secretary to the Treasury, says workers need more help:
“Inflation remains higher than the Bank of England’s target, while working people are struggling with real earnings still lower than in 2010, following eight years of Tory economic failure.
The next Labour government will introduce a £10 per hour Real Living Wage to tackle the squeeze on wages, and build a high wage, high skill economy for the many, not the few.”
Today’s report also shows the impact of Britain’s new sugar tax.
Prices for mineral waters, soft drinks and juices jumped by 2.8% in April, as some retailers passed on a new levy on beverages packed with sugar.
That’s a chunky increase, but not enough to prevent the wider inflation rate falling.
Mike Hardie, head of inflation at the Office for National Statistics, explains:
“Inflation continued to slow in April, with air fares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices.
“Soft drink prices saw their biggest ever rise for this time of year, due to the introduction of the sugar tax. However, many retailers still haven’t passed the impact of the tax onto shoppers.
Martin Lane, managing editor of money.co.uk, has welcomed the drop in UK inflation to a 13-month low:Martin Lane, managing editor of money.co.uk, has welcomed the drop in UK inflation to a 13-month low:
“The nation can breathe a small sigh of relief. Inflation has fallen, so the pounds in our pockets aren’t being stretched quite as far.“The nation can breathe a small sigh of relief. Inflation has fallen, so the pounds in our pockets aren’t being stretched quite as far.
The pressure on our wages is easing and the gap between inflation and wage growth has disappeared, easing the strain on our wallets.The pressure on our wages is easing and the gap between inflation and wage growth has disappeared, easing the strain on our wallets.
Something else consumers will be grateful for in the run up to holiday season, is the cost of items like food and airfares are slowing.Something else consumers will be grateful for in the run up to holiday season, is the cost of items like food and airfares are slowing.
But consumes should still be cautious, Lane adds:But consumes should still be cautious, Lane adds:
“With inflation at a one year low of 2.4% and no interest rises yet it may seem like a great time to spend spend spend. However, there are still interest rate rises looming on the horizon, so it isn’t the time for you to splash your cash just yet. Use the good times to prepare your finances for when they aren’t so great.“With inflation at a one year low of 2.4% and no interest rises yet it may seem like a great time to spend spend spend. However, there are still interest rate rises looming on the horizon, so it isn’t the time for you to splash your cash just yet. Use the good times to prepare your finances for when they aren’t so great.
Create a budget and spend 30 minutes looking at where you could make savings, from switching where you do your weekly shop to changing your energy supplier. Half an hour of research and admin could save you hundreds, if not thousands a year.”Create a budget and spend 30 minutes looking at where you could make savings, from switching where you do your weekly shop to changing your energy supplier. Half an hour of research and admin could save you hundreds, if not thousands a year.”
Kevin Doran, chief investment officer at stockbroker AJ Bell, warns that the drop in inflation may not last.Kevin Doran, chief investment officer at stockbroker AJ Bell, warns that the drop in inflation may not last.
“UK consumers will be glad to see average wage increases starting to outstrip inflation and for the spending power of the pound in their pocket pick up further.“UK consumers will be glad to see average wage increases starting to outstrip inflation and for the spending power of the pound in their pocket pick up further.
“However, the recent weakness in the pound and the rising oil price are a concern and could quickly reverse the drop in inflation. The jump in the oil price has started to hit petrol pumps, pushing up costs for UK consumers and businesses alike. In addition, the weak pound will be driving up input costs for many UK companies which will ultimately filter through to UK consumers in the coming months.“However, the recent weakness in the pound and the rising oil price are a concern and could quickly reverse the drop in inflation. The jump in the oil price has started to hit petrol pumps, pushing up costs for UK consumers and businesses alike. In addition, the weak pound will be driving up input costs for many UK companies which will ultimately filter through to UK consumers in the coming months.
“If inflation does increase, UK consumers will once again start to feel the pinch. Wage growth is currently only marginally ahead of inflation at 2.6% and interest rates on cash savings remain rock bottom so rising prices will weaken the spending power of both earnings and savings.”“If inflation does increase, UK consumers will once again start to feel the pinch. Wage growth is currently only marginally ahead of inflation at 2.6% and interest rates on cash savings remain rock bottom so rising prices will weaken the spending power of both earnings and savings.”
The drop in inflation in April suggests that real wages in the UK are still growing, at a modest pace.The drop in inflation in April suggests that real wages in the UK are still growing, at a modest pace.
The latest data shows that average basic pay in Britain (excluding bonuses) rose by 2.9% per year in the first quarter of 2018. Total pay (including bonuses) rose by 2.6%, or barely ahead of the cost of living.The latest data shows that average basic pay in Britain (excluding bonuses) rose by 2.9% per year in the first quarter of 2018. Total pay (including bonuses) rose by 2.6%, or barely ahead of the cost of living.
Why did the unusually early Easter helped to pull inflation down last month?Why did the unusually early Easter helped to pull inflation down last month?
Easter Sunday fell on 1 April, two weeks earlier than in 2017. Airlines usually put prices up as people either jet off for holidays, or travel home - but this year, that rush began in March.Easter Sunday fell on 1 April, two weeks earlier than in 2017. Airlines usually put prices up as people either jet off for holidays, or travel home - but this year, that rush began in March.
The ONS explains:The ONS explains:
The timing of Easter in the middle of April 2017 contributed to air fares rising by 18.6% on the month whereas this year, Easter fell at the beginning of April before the price collection period and there was no price rise.The timing of Easter in the middle of April 2017 contributed to air fares rising by 18.6% on the month whereas this year, Easter fell at the beginning of April before the price collection period and there was no price rise.
Instead, fares fell slightly, by 0.2%, between March and April.Instead, fares fell slightly, by 0.2%, between March and April.
Core inflation, which strips out volatile items, has fallen to just 2.1% from 2.3% in March.Core inflation, which strips out volatile items, has fallen to just 2.1% from 2.3% in March.
That’s another sign of cooling inflationary pressures.That’s another sign of cooling inflationary pressures.
*U.K. APRIL CORE INFLATION RATE FALLS TO 2.1%; EST. 2.2%*U.K. APRIL CORE INFLATION RATE FALLS TO 2.1%; EST. 2.2%
The pound has fallen to a new five-month low, as the City reacts to today’s unexpectedly weak inflation report.The pound has fallen to a new five-month low, as the City reacts to today’s unexpectedly weak inflation report.
Sterling has shed three quarters of a cent against the US dollar to $1.3348, its lowest point since the end of December.Sterling has shed three quarters of a cent against the US dollar to $1.3348, its lowest point since the end of December.
British pound adds to session losses as inflation comes in below expectations https://t.co/yl07wUpnxP pic.twitter.com/lYKU8xvuseBritish pound adds to session losses as inflation comes in below expectations https://t.co/yl07wUpnxP pic.twitter.com/lYKU8xvuse
Fresh lows for 2018 for GBPUSD on inflation data. 1.3300 the next level in focus - has lost 1,000 points/10c versus US dollar over past 5 weeks. pic.twitter.com/pemPyYa3u5Fresh lows for 2018 for GBPUSD on inflation data. 1.3300 the next level in focus - has lost 1,000 points/10c versus US dollar over past 5 weeks. pic.twitter.com/pemPyYa3u5
The Bank of England’s mandate is to keep CPI near to 2%; traders are calculating that today’s drop in inflation reduces the chances of an interest rate rise in August.The Bank of England’s mandate is to keep CPI near to 2%; traders are calculating that today’s drop in inflation reduces the chances of an interest rate rise in August.
UK inflation falls to 2.4%, lower than expected. It's now fallen three months in a row, longest run of easing inflationary pressures in over three years. Sterling falls to a low for the year of $1.3350. Rate hike, anyone?UK inflation falls to 2.4%, lower than expected. It's now fallen three months in a row, longest run of easing inflationary pressures in over three years. Sterling falls to a low for the year of $1.3350. Rate hike, anyone?
Food and men’s clothing prices helped to pull inflation down last month, alongside the impact of cheaper air fares.Food and men’s clothing prices helped to pull inflation down last month, alongside the impact of cheaper air fares.
The Office for National Statistics says:The Office for National Statistics says:
Clothing and footwear also had a downward effect, with prices rising by 0.4% between March and April 2018 compared with a larger rise of 1.1% between the same two months a year earlier. The effect came mainly from men’s clothing.Clothing and footwear also had a downward effect, with prices rising by 0.4% between March and April 2018 compared with a larger rise of 1.1% between the same two months a year earlier. The effect came mainly from men’s clothing.
A smaller downward contribution came from food and non-alcoholic beverages. This was from a range of food products with the largest single effect from meat, where prices fell this year but rose a year ago, particularly for cooked ham. The downward contribution from food was partially offset by an upward effect from mineral waters, soft drinks and juices, where prices rose by 2.8% between March and April this year compared with a rise of 0.3% a year ago.A smaller downward contribution came from food and non-alcoholic beverages. This was from a range of food products with the largest single effect from meat, where prices fell this year but rose a year ago, particularly for cooked ham. The downward contribution from food was partially offset by an upward effect from mineral waters, soft drinks and juices, where prices rose by 2.8% between March and April this year compared with a rise of 0.3% a year ago.
Cheaper air fares helped to pull inflation down last month, and make up for higher petrol prices at the pumps.Cheaper air fares helped to pull inflation down last month, and make up for higher petrol prices at the pumps.
The ONS says:The ONS says:
The largest downward contribution to the change in the rate came from air fares, which were influenced by the timing of Easter.The largest downward contribution to the change in the rate came from air fares, which were influenced by the timing of Easter.
Rising prices for motor fuels produced the largest, partially offsetting, upward effect.Rising prices for motor fuels produced the largest, partially offsetting, upward effect.
Newsflash: Uk inflation has fallen to a new one-year.Newsflash: Uk inflation has fallen to a new one-year.
The consumer prices index - the headline measure of inflation - rose by 2.4% in April, down from 2.5% in March.The consumer prices index - the headline measure of inflation - rose by 2.4% in April, down from 2.5% in March.
More to follow!More to follow!
Stand By Your Desks! UK Inflation data up next and I will be looking at PPI in particular as the lower £ and higher crude oil price make up around 70% of it so we could see a surge. #CPIStand By Your Desks! UK Inflation data up next and I will be looking at PPI in particular as the lower £ and higher crude oil price make up around 70% of it so we could see a surge. #CPI
Newsflash: Growth across the eurozone has fallen to its lowest level in 18 months.Newsflash: Growth across the eurozone has fallen to its lowest level in 18 months.
Data firm Markit reports that activity and new orders at eurozone companies is expanding at a slower rate this month, with a knock-on effect on confidence and job creation.Data firm Markit reports that activity and new orders at eurozone companies is expanding at a slower rate this month, with a knock-on effect on confidence and job creation.
German and France suffered the sharpest slowdown, Markit says.German and France suffered the sharpest slowdown, Markit says.
This pulled Markit’s flash PMI index down to 54.1 in May, from 55.1 in April (the data is based on interviews with purchasing managers at eurozone companies) .This pulled Markit’s flash PMI index down to 54.1 in May, from 55.1 in April (the data is based on interviews with purchasing managers at eurozone companies) .
Chris Williamson, chief business economist at IHS Markit, says the eurozone economy is losing momentum after a strong 2017Chris Williamson, chief business economist at IHS Markit, says the eurozone economy is losing momentum after a strong 2017
“The May PMI brought yet another set of disappointing survey results, though once again a note of caution is required when interpreting the findings. While prior months have seen various factors such as extreme weather, strikes, illness and the timing of Easter dampen growth, May saw reports of business being adversely affected by an unusually high number of public holidays.“The May PMI brought yet another set of disappointing survey results, though once again a note of caution is required when interpreting the findings. While prior months have seen various factors such as extreme weather, strikes, illness and the timing of Easter dampen growth, May saw reports of business being adversely affected by an unusually high number of public holidays.
Furthermore, despite the headline PMI dropping to an 18-month low, the survey remains at a level consistent with the eurozone economy growing at a reasonably solid rate of just over 0.4% in the second quarter.Furthermore, despite the headline PMI dropping to an 18-month low, the survey remains at a level consistent with the eurozone economy growing at a reasonably solid rate of just over 0.4% in the second quarter.
Piet Christiansen of Danske Bank says this weakness will deter the European Central Bank from tightening its monetary policy next month.Piet Christiansen of Danske Bank says this weakness will deter the European Central Bank from tightening its monetary policy next month.
🇪🇺#PMI's this morning. Just ouch! Surely don't look for June to take the next step in #ECB forward guidance. Generally, more than just a soft patch... #Markit comment says it all: "The survey also indicated that companies have become less optimistic about the outlook." pic.twitter.com/wAmwVLFUEq🇪🇺#PMI's this morning. Just ouch! Surely don't look for June to take the next step in #ECB forward guidance. Generally, more than just a soft patch... #Markit comment says it all: "The survey also indicated that companies have become less optimistic about the outlook." pic.twitter.com/wAmwVLFUEq
Those trade worries have dragged Britain’s FTSE 100 away from yesterday’s record high.Those trade worries have dragged Britain’s FTSE 100 away from yesterday’s record high.
The blue-chip index is down almost 50 points at 7829, a drop of 0.6%.The blue-chip index is down almost 50 points at 7829, a drop of 0.6%.
#Stocks | It's starting to turn real ugly at the moment. - @ForexLive Eurostoxx -0.9%Germany DAX -1.2%UK FTSE -0.5%France CAC 40 -0.9%Spain IBEX -1.2%Italy MIB -1.3%Portugal PSI -1.3%$DAX $FTSE $STOXX etc. cc. $DJIA $SPX $NDX $VIX pic.twitter.com/uzKvt6A60L#Stocks | It's starting to turn real ugly at the moment. - @ForexLive Eurostoxx -0.9%Germany DAX -1.2%UK FTSE -0.5%France CAC 40 -0.9%Spain IBEX -1.2%Italy MIB -1.3%Portugal PSI -1.3%$DAX $FTSE $STOXX etc. cc. $DJIA $SPX $NDX $VIX pic.twitter.com/uzKvt6A60L
European stock markets are in the red this morning, as anxiety over a potential trade war between America and China ripples through trading floors again.European stock markets are in the red this morning, as anxiety over a potential trade war between America and China ripples through trading floors again.
Yesterday, president Trump declared that he’s ‘not satisfied’ with the progress of trade talks with China.Yesterday, president Trump declared that he’s ‘not satisfied’ with the progress of trade talks with China.
This has fuelled worries that negotiations with Beijing could falter, just few days after the two sides stepped back from imposing tariffs on each other’s goods.This has fuelled worries that negotiations with Beijing could falter, just few days after the two sides stepped back from imposing tariffs on each other’s goods.
Trump is also facing a backlash back home, over his efforts to protect Chinese telecoms firm ZTE from US sanctions.Trump is also facing a backlash back home, over his efforts to protect Chinese telecoms firm ZTE from US sanctions.
Republicans in Congress are drawing up legislation that would block the White House’s attempt to save ZTE - which could undermine Trump’s efforts to improve relations with Beijing:Republicans in Congress are drawing up legislation that would block the White House’s attempt to save ZTE - which could undermine Trump’s efforts to improve relations with Beijing:
FINANCIAL TIMES: Republicans launch revolt against Trump rescue of China’s ZTE Corp #tomorrowspaperstoday pic.twitter.com/tmX2y9PbvoFINANCIAL TIMES: Republicans launch revolt against Trump rescue of China’s ZTE Corp #tomorrowspaperstoday pic.twitter.com/tmX2y9Pbvo
Economist Rupert Seggins predicts that the rising oil price has pushed transport inflation up, while food price inflation has slowed:Economist Rupert Seggins predicts that the rising oil price has pushed transport inflation up, while food price inflation has slowed:
1. UK inflation figures for April out today. Consensus is that inflation on the CPI measure will stay at 2.5%y/y, while core inflation is expected to fall from 2.3%y/y to 2.2%y/y as sterling works its way out of core price changes. pic.twitter.com/tOajpIvcs61. UK inflation figures for April out today. Consensus is that inflation on the CPI measure will stay at 2.5%y/y, while core inflation is expected to fall from 2.3%y/y to 2.2%y/y as sterling works its way out of core price changes. pic.twitter.com/tOajpIvcs6
BSBS
2. More fuel for the UK inflation fire. With oil price inflation picking up over the past month or so, we seem set for a rise in transport price inflation in April's figures. pic.twitter.com/V2Gn6eKmtj2. More fuel for the UK inflation fire. With oil price inflation picking up over the past month or so, we seem set for a rise in transport price inflation in April's figures. pic.twitter.com/V2Gn6eKmtj
3. Food price inflation has slowed of late, as sterling's pass through into input costs (and hence output prices) has eased. New figures at 9:30. pic.twitter.com/kC2DucpApq3. Food price inflation has slowed of late, as sterling's pass through into input costs (and hence output prices) has eased. New figures at 9:30. pic.twitter.com/kC2DucpApq
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we discover if Britain’s cost of living squeeze is getting any easier, when the latest UK inflation figures are released.Today we discover if Britain’s cost of living squeeze is getting any easier, when the latest UK inflation figures are released.
Economists predict that consumer prices rose by 2.5% in the year to April, matching March’s unexpectedly low inflation reading.Economists predict that consumer prices rose by 2.5% in the year to April, matching March’s unexpectedly low inflation reading.
That would mean wages are, thankfully, outpacing inflation - average basic pay grew by 2.9% in the year to March.That would mean wages are, thankfully, outpacing inflation - average basic pay grew by 2.9% in the year to March.
Any drop in inflation would clearly be welcomed by UK consumer, who have suffered from falling real wages last year. As the Bank of England pointed out yesterday, households are £900 poorer than expected two years ago.Any drop in inflation would clearly be welcomed by UK consumer, who have suffered from falling real wages last year. As the Bank of England pointed out yesterday, households are £900 poorer than expected two years ago.
But, falling inflation would take pressure off the Bank of England to raise interest rates. Traders are split over whether the BoE will take the plunge in August, so they’ll be scrutinising the data closely.But, falling inflation would take pressure off the Bank of England to raise interest rates. Traders are split over whether the BoE will take the plunge in August, so they’ll be scrutinising the data closely.
The pound has already weakened this morning to a five-month low. Sterling has shed half a cent against the US dollar to $1.3376, its lowest level since the end of December 2017.The pound has already weakened this morning to a five-month low. Sterling has shed half a cent against the US dollar to $1.3376, its lowest level since the end of December 2017.
Konstantinos Anthis, head of research at ADS Securities, says a weak inflation report could sent sterling lower:Konstantinos Anthis, head of research at ADS Securities, says a weak inflation report could sent sterling lower:
Sterling rallied higher yesterday on the back of somewhat bullish remarks from BoE economist Gertjan Vlieghe that mentioned that he sees more rate hikes ahead but as we highlighted in our previous note the market doesn’t seem to agree.Sterling rallied higher yesterday on the back of somewhat bullish remarks from BoE economist Gertjan Vlieghe that mentioned that he sees more rate hikes ahead but as we highlighted in our previous note the market doesn’t seem to agree.
The rally to $1.35 was treated as an opportunity to go short on the pound and if today’s inflation report prints soft as expected sterling could break below $1.34 en route to the $1.33 floor.The rally to $1.35 was treated as an opportunity to go short on the pound and if today’s inflation report prints soft as expected sterling could break below $1.34 en route to the $1.33 floor.
Royal Bank of Canada predict that CPI will be unchanged at 2.5%:Royal Bank of Canada predict that CPI will be unchanged at 2.5%:
Falling fuel prices helped inflation fall more than expected in recent months but that effect looks to have reversed in April with pump prices rising 1.6% m/m. There is some offset from the timing of Easter.Falling fuel prices helped inflation fall more than expected in recent months but that effect looks to have reversed in April with pump prices rising 1.6% m/m. There is some offset from the timing of Easter.
We also get a new healthcheck on the eurozone economy this morning. Data firm Markit’s latest survey of purchasing managers is expected to show steady growth this month.We also get a new healthcheck on the eurozone economy this morning. Data firm Markit’s latest survey of purchasing managers is expected to show steady growth this month.
Plus, the latest oil inventory figures from America could move energy prices; last week they helped to push Brent crude over $80 per barrel.Plus, the latest oil inventory figures from America could move energy prices; last week they helped to push Brent crude over $80 per barrel.
The agenda:The agenda:
9am BST: The ‘flash’ PMI survey of eurozone manufacturing and services9am BST: The ‘flash’ PMI survey of eurozone manufacturing and services
9.30am BST: UK inflation figures for April9.30am BST: UK inflation figures for April
9.30am BST: UK house price data for March9.30am BST: UK house price data for March
11am BST: CBI survey of UK retail sales for May11am BST: CBI survey of UK retail sales for May
3pm BST: US weekly oil inventory figures3pm BST: US weekly oil inventory figures