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| UK inflation rate drops to 2.6%, but wage squeeze continues - as it happened | UK inflation rate drops to 2.6%, but wage squeeze continues - as it happened |
| (4 months later) | |
| It was a tale of banks and currencies in the markets, with investors facing losses of varying sizes almost across the board. | It was a tale of banks and currencies in the markets, with investors facing losses of varying sizes almost across the board. |
| Disappointing results from Goldman Sachs, as well as Bank of America, pushed the sector lower and undermined the rest of the market. | Disappointing results from Goldman Sachs, as well as Bank of America, pushed the sector lower and undermined the rest of the market. |
| Meanwhile, lower than expected UK inflation figures sent the pound down 0.2% but did little for the FTSE 100, suffering from falls from Barclays and Royal Bank of Scotland. Joshua Mahony, market analyst at IG, said: | Meanwhile, lower than expected UK inflation figures sent the pound down 0.2% but did little for the FTSE 100, suffering from falls from Barclays and Royal Bank of Scotland. Joshua Mahony, market analyst at IG, said: |
| Indecision has once more reigned for the FTSE today...Much of the FTSE and sterling trade has been centred on this morning’s CPI figures, which certainly gave the BoE some much needed breathing space after months of rising inflation and falling wage growth. Crucially, whilst much of the reduction in headline CPI has been attributed to falling energy prices, it is encouraging to see the core CPI figure also tumble, to 2.4%. Real incomes have been eroded in recent months, with the resulting cut in disposable income expected to hit consumer spending habits. | Indecision has once more reigned for the FTSE today...Much of the FTSE and sterling trade has been centred on this morning’s CPI figures, which certainly gave the BoE some much needed breathing space after months of rising inflation and falling wage growth. Crucially, whilst much of the reduction in headline CPI has been attributed to falling energy prices, it is encouraging to see the core CPI figure also tumble, to 2.4%. Real incomes have been eroded in recent months, with the resulting cut in disposable income expected to hit consumer spending habits. |
| In Europe a stronger euro has sent markets lower, ahead of this week’s European Central Bank meeting. Neil Wilson, senior market analyst at ETX Capital, said: | In Europe a stronger euro has sent markets lower, ahead of this week’s European Central Bank meeting. Neil Wilson, senior market analyst at ETX Capital, said: |
| The key driver for European stocks appeared to be the currency, with a stronger euro weighing on appetite for equities. The euro/dollar advanced around 0.9% and eased clear of $1.15 to trade at its highest since May 2016 as the euro gained momentum from fresh dollar softness in the wake of the health bill failure. | The key driver for European stocks appeared to be the currency, with a stronger euro weighing on appetite for equities. The euro/dollar advanced around 0.9% and eased clear of $1.15 to trade at its highest since May 2016 as the euro gained momentum from fresh dollar softness in the wake of the health bill failure. |
| The euro/dollar is now eyeing the May 3 high above $1.16 and, if breached, could start to target the $1.17 handle last seen in August 2015. A lot hinges on some pretty subtle language and shifts in tone by Mario Draghi and the ECB on Thursday. A removal of the easing bias in the policy statement could be enough to push it higher but we must prepare for Mr Draghi to don his dovish cap and talk down the currency lest a stronger euro gets in the way of the ECB’s outlook. | The euro/dollar is now eyeing the May 3 high above $1.16 and, if breached, could start to target the $1.17 handle last seen in August 2015. A lot hinges on some pretty subtle language and shifts in tone by Mario Draghi and the ECB on Thursday. A removal of the easing bias in the policy statement could be enough to push it higher but we must prepare for Mr Draghi to don his dovish cap and talk down the currency lest a stronger euro gets in the way of the ECB’s outlook. |
| The final scores showed: | The final scores showed: |
| The FTSE 100 finished down 13.91 points or 0.19% at 7390.22 | The FTSE 100 finished down 13.91 points or 0.19% at 7390.22 |
| France’s Cac closed 1.25% lower at 12,430.39 | France’s Cac closed 1.25% lower at 12,430.39 |
| Germany’s Dax dropped 1.09% to 5173.27 | Germany’s Dax dropped 1.09% to 5173.27 |
| Italy’s FTSE MIB fell 0.59% to 21,358.20 | Italy’s FTSE MIB fell 0.59% to 21,358.20 |
| Spain’s Ibex ended down 1.19% at 10,524.5 | Spain’s Ibex ended down 1.19% at 10,524.5 |
| In Greece, the Athens market lost 1.17% to 848.07 | In Greece, the Athens market lost 1.17% to 848.07 |
| On Wall Street, the Dow Jones Industrial Average is currently down 79 points or 0.37%. | On Wall Street, the Dow Jones Industrial Average is currently down 79 points or 0.37%. |
| On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow. | On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow. |
| After the launch of the £10 in Winchester, where he said nothing about the day’s inflation figures, Bank of England governor Mark Carney has been speaking to Sky about that very subject. | After the launch of the £10 in Winchester, where he said nothing about the day’s inflation figures, Bank of England governor Mark Carney has been speaking to Sky about that very subject. |
| He said the figures were consistent with the Bank’s forecast that inflation would overshoot its target for some time, and the big picture remained the same: the fall in the pound pushing up prices. | He said the figures were consistent with the Bank’s forecast that inflation would overshoot its target for some time, and the big picture remained the same: the fall in the pound pushing up prices. |
| The FTSE 100 has slipped back after the weaker than expected inflation figures, the Dow Jones Industrial Average is down on disappointing results and the latest setback for President Trump, but the real declines are in Europe due to the strength of the euro. Connor Campbell, financial analyst at Spreadex, says: | The FTSE 100 has slipped back after the weaker than expected inflation figures, the Dow Jones Industrial Average is down on disappointing results and the latest setback for President Trump, but the real declines are in Europe due to the strength of the euro. Connor Campbell, financial analyst at Spreadex, says: |
| Over in the eurozone the Dax and Cac had a serious currency headache, dropping 1.4% and 1.1% respectively. That’s because the euro’s sterling-gains were joined by a similarly strong performance against the dollar, where it surged 0.9% to a fresh 2 and a half month high, now sitting just shy of $1.16. | Over in the eurozone the Dax and Cac had a serious currency headache, dropping 1.4% and 1.1% respectively. That’s because the euro’s sterling-gains were joined by a similarly strong performance against the dollar, where it surged 0.9% to a fresh 2 and a half month high, now sitting just shy of $1.16. |
| Back with the US and some more disappointing economic figures, this time from the housing market. | Back with the US and some more disappointing economic figures, this time from the housing market. |
| The National Association of Home Builders housing index slipped from 66 in June to 64 this month, lower than the expected figure of 67. This is the lowest reading since last November. NAHB chairman Granger MacDonald said: | The National Association of Home Builders housing index slipped from 66 in June to 64 this month, lower than the expected figure of 67. This is the lowest reading since last November. NAHB chairman Granger MacDonald said: |
| Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber. This is hurting housing affordability even as consumer interest in the new-home market remains strong. | Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber. This is hurting housing affordability even as consumer interest in the new-home market remains strong. |
| NAHB: Builder Confidence decreased to 64 in July https://t.co/zvuBTtVh23 pic.twitter.com/aSSAUJVimM | NAHB: Builder Confidence decreased to 64 in July https://t.co/zvuBTtVh23 pic.twitter.com/aSSAUJVimM |
| Spain’s economic recovery remains strong but the country still needs structural reforms to cope with any future economic shocks, says the International Monetary Fund, which has also upgraded its growth forecast. In its latest report it said: | Spain’s economic recovery remains strong but the country still needs structural reforms to cope with any future economic shocks, says the International Monetary Fund, which has also upgraded its growth forecast. In its latest report it said: |
| Spain’s economic recovery remains strong, with consumption, investment, and net exports all contributing to a more balanced growth pattern. A shift in resources toward Spain’s competitive export sector, with the services sector creating most new jobs, has played an important part in the rebound. Banking sector balance sheets are stronger, private sector debt is coming down, and credit availability is improving. As the recovery is maturing, it is time to tackle the remaining vulnerabilities related to elevated public debt and complete the still-ongoing post-crisis banking sector adjustment. At the same time, reducing structural unemployment and fostering productivity growth remain priorities. Without farther determined progress on structural reforms and rebuilding of fiscal buffers, the economy would remain vulnerable to shocks and risk leaving some segments of the population behind. | Spain’s economic recovery remains strong, with consumption, investment, and net exports all contributing to a more balanced growth pattern. A shift in resources toward Spain’s competitive export sector, with the services sector creating most new jobs, has played an important part in the rebound. Banking sector balance sheets are stronger, private sector debt is coming down, and credit availability is improving. As the recovery is maturing, it is time to tackle the remaining vulnerabilities related to elevated public debt and complete the still-ongoing post-crisis banking sector adjustment. At the same time, reducing structural unemployment and fostering productivity growth remain priorities. Without farther determined progress on structural reforms and rebuilding of fiscal buffers, the economy would remain vulnerable to shocks and risk leaving some segments of the population behind. |
| The IMF has raised its economic growth forecast from 2.6% this year to 3.1%, saying: | The IMF has raised its economic growth forecast from 2.6% this year to 3.1%, saying: |
| Real GDP is projected to grow by 3.1 percent this year, and there is upside risk as the momentum created by past reforms may be bigger than estimated. | Real GDP is projected to grow by 3.1 percent this year, and there is upside risk as the momentum created by past reforms may be bigger than estimated. |
| But it added: | But it added: |
| [Challenges} need to be fully addressed to offset the expected slow-down in medium-term growth and to build greater resilience. Public debt and structural unemployment are still high, population aging is creating fiscal pressures, and productivity lags that of EU peers. In addition, Spain’s net debtor position with the rest of the world remains large, and financial sector adjustment and further reforms to strengthen and modernize the institutional arrangements are yet to be fully completed. | [Challenges} need to be fully addressed to offset the expected slow-down in medium-term growth and to build greater resilience. Public debt and structural unemployment are still high, population aging is creating fiscal pressures, and productivity lags that of EU peers. In addition, Spain’s net debtor position with the rest of the world remains large, and financial sector adjustment and further reforms to strengthen and modernize the institutional arrangements are yet to be fully completed. |
| The latest setback for Donald Trump and his healthcare plans has prompted speculation the President will struggle to get other measures passed - notably tax reform - and unsettled investors. | The latest setback for Donald Trump and his healthcare plans has prompted speculation the President will struggle to get other measures passed - notably tax reform - and unsettled investors. |
| So the Dow Jones Industrial Average has fallen 62 points or 0.29%, while the S&P 500 and Nasdaq Composite are down similar amounts. Healthcare companies were under pressure while uninspiring results from Bank of America and Goldman Sachs saw their shares slip back. | So the Dow Jones Industrial Average has fallen 62 points or 0.29%, while the S&P 500 and Nasdaq Composite are down similar amounts. Healthcare companies were under pressure while uninspiring results from Bank of America and Goldman Sachs saw their shares slip back. |
| But Netflix has jumped nearly 10% after the streaming service topped 100m subscribers, helped by growth outside the US. | But Netflix has jumped nearly 10% after the streaming service topped 100m subscribers, helped by growth outside the US. |
| Here is our report on the launch, from Steven Morris. | Here is our report on the launch, from Steven Morris. |
| And the Bank’s press release and Carney’s comments are here. | And the Bank’s press release and Carney’s comments are here. |
| So far no economic commentary from Bank of England governor Mark Carney, who has been praising Austen and putting the new tenner in the context of the history of banknotes. | So far no economic commentary from Bank of England governor Mark Carney, who has been praising Austen and putting the new tenner in the context of the history of banknotes. |
| The unveiling of the £10 note is underway and can be seen live here. | The unveiling of the £10 note is underway and can be seen live here. |
| Later this afternoon, Bank of England governor Mark Carney is at Winchester Cathedral to launch the new polymer £10 note featuring Jane Austen. Given the day’s inflation figures and the implications for interest rates, it will be interesting to see what, if any, comments he makes on the UK economy. | Later this afternoon, Bank of England governor Mark Carney is at Winchester Cathedral to launch the new polymer £10 note featuring Jane Austen. Given the day’s inflation figures and the implications for interest rates, it will be interesting to see what, if any, comments he makes on the UK economy. |
| The launch of the plastic fiver last June came not long before the EU referendum, so Carney stuck to the subject of banknotes rather than wider economic issues. | The launch of the plastic fiver last June came not long before the EU referendum, so Carney stuck to the subject of banknotes rather than wider economic issues. |
| The pound is still on the slide after the weaker than expected inflation figures suggested a Bank of England rate rise could be some way off. Against the dollar, sterling is now down 0.3% at $1.3016 and 0.9% lower against the euro at €1.1265. FXTM research analyst Lukman Otunuga reckons the pound could fall further: | The pound is still on the slide after the weaker than expected inflation figures suggested a Bank of England rate rise could be some way off. Against the dollar, sterling is now down 0.3% at $1.3016 and 0.9% lower against the euro at €1.1265. FXTM research analyst Lukman Otunuga reckons the pound could fall further: |
| The fact that sterling sharply depreciated across the board on Tuesday, after British inflation rates unexpectedly dropped to 2.6% in June, continues to highlight how the currency has become increasingly sensitive to monetary policy speculation. Price action suggests that those who were heavily reliant on the possibility that higher rates would support sterling further were left empty-handed, as deceleration in inflation eroded expectations of a UK rate increase in 2017. Although the Bank of England has adopted a hawkish tone in recent weeks, today’s fall in inflation is likely to ease pressure on the Bank of England taking action, consequently keeping hawks at bay... | The fact that sterling sharply depreciated across the board on Tuesday, after British inflation rates unexpectedly dropped to 2.6% in June, continues to highlight how the currency has become increasingly sensitive to monetary policy speculation. Price action suggests that those who were heavily reliant on the possibility that higher rates would support sterling further were left empty-handed, as deceleration in inflation eroded expectations of a UK rate increase in 2017. Although the Bank of England has adopted a hawkish tone in recent weeks, today’s fall in inflation is likely to ease pressure on the Bank of England taking action, consequently keeping hawks at bay... |
| Investors should keep in mind that the fundamentals behind sterling’s woes remain intact, with sellers potentially exploiting rate hike speculations and dollar weakness to install fresh rounds of selling. From a technical standpoint, a decisive breakdown and daily close below 1.3000 should encourage a further decline towards 1.2850. | Investors should keep in mind that the fundamentals behind sterling’s woes remain intact, with sellers potentially exploiting rate hike speculations and dollar weakness to install fresh rounds of selling. From a technical standpoint, a decisive breakdown and daily close below 1.3000 should encourage a further decline towards 1.2850. |
| Time for a recap, for those of just tuning in. | Time for a recap, for those of just tuning in. |
| UK inflation fell unexpectedly in June for the first time in nine months as lower fuel prices provided some respite for cash-strapped consumers. | UK inflation fell unexpectedly in June for the first time in nine months as lower fuel prices provided some respite for cash-strapped consumers. |
| The consumer prices index fell to 2.6% from a four-year high of 2.9% in May according to the Office for National Statistics. Economists had expected the rate to be unchanged. | The consumer prices index fell to 2.6% from a four-year high of 2.9% in May according to the Office for National Statistics. Economists had expected the rate to be unchanged. |
| The fall was mainly driven by lower petrol and diesel prices, reflecting weaker global oil prices. Fuel prices fell by 1.1% between May and June, compared with a 2.2% rise over the same month a year earlier. Lower prices of games and toys also contributed to the fall. | The fall was mainly driven by lower petrol and diesel prices, reflecting weaker global oil prices. Fuel prices fell by 1.1% between May and June, compared with a 2.2% rise over the same month a year earlier. Lower prices of games and toys also contributed to the fall. |
| CPI #inflation fell by more than expected in June, to 2.6%. Key downward drivers were falling prices of fuel and recreation & culture. pic.twitter.com/ht7SVbf1DE | CPI #inflation fell by more than expected in June, to 2.6%. Key downward drivers were falling prices of fuel and recreation & culture. pic.twitter.com/ht7SVbf1DE |
| However, at 2.6% inflation is still well above the Bank of England’s 2% target, and signalled a sustained fall in real wages as prices rise faster than current pay growth of 2%..... | However, at 2.6% inflation is still well above the Bank of England’s 2% target, and signalled a sustained fall in real wages as prices rise faster than current pay growth of 2%..... |
| Frances O’Grady, the TUC general secretary, said the government must act to halt the decline in living standards. | Frances O’Grady, the TUC general secretary, said the government must act to halt the decline in living standards. |
| “The government must stop this cost of living squeeze. | “The government must stop this cost of living squeeze. |
| Many working people are caught in a vice as rising prices crush their pay. Ministers claim they are listening to struggling families. But now is the time to prove it. Britain needs a pay rise across the public and private sector.” | Many working people are caught in a vice as rising prices crush their pay. Ministers claim they are listening to struggling families. But now is the time to prove it. Britain needs a pay rise across the public and private sector.” |
| A spokesperson for the Treasury acknowledged that some households were struggling financially. | A spokesperson for the Treasury acknowledged that some households were struggling financially. |
| “While it is encouraging that inflation was lower this month, we appreciate that some families are concerned about the cost of living. That’s why we have introduced the national living wage, which is helping to boost earnings by £1,400 a year, and why we’ve cut taxes for millions of people to help them keep more of what they earn. We are also increasing our free childcare offer to help 400,000 working parents.”.... | “While it is encouraging that inflation was lower this month, we appreciate that some families are concerned about the cost of living. That’s why we have introduced the national living wage, which is helping to boost earnings by £1,400 a year, and why we’ve cut taxes for millions of people to help them keep more of what they earn. We are also increasing our free childcare offer to help 400,000 working parents.”.... |
| Here’s Angela Monaghan’s news story on the data: | Here’s Angela Monaghan’s news story on the data: |
| Here’s a reminder of the key charts: | Here’s a reminder of the key charts: |
| Economists have warned that families still face a cost of living squeeze. | Economists have warned that families still face a cost of living squeeze. |
| Maike Currie of Fidelity International says: | Maike Currie of Fidelity International says: |
| Our pay packets aren’t keeping up with rising prices despite the UK’s unemployment rate reaching its lowest level since 1975. This is tightening the squeeze on UK households, which is bad news for an economy that relies on confident consumers spending on goods and services. | Our pay packets aren’t keeping up with rising prices despite the UK’s unemployment rate reaching its lowest level since 1975. This is tightening the squeeze on UK households, which is bad news for an economy that relies on confident consumers spending on goods and services. |
| Calum Bennie of Scottish Friendly adds: | Calum Bennie of Scottish Friendly adds: |
| “Despite a drop in the headline rate of inflation, many families will still be facing the same relentless pressure to make ends meet. The cost of food, household goods and furniture all became more expensive in June and with wage growth still flat those at the bottom will continue to turn to credit or rapidly deplete savings just to keep food on the table. | “Despite a drop in the headline rate of inflation, many families will still be facing the same relentless pressure to make ends meet. The cost of food, household goods and furniture all became more expensive in June and with wage growth still flat those at the bottom will continue to turn to credit or rapidly deplete savings just to keep food on the table. |
| Sterling sharply when the data was released. It has subsided further as traders concluded that UK interest rates are now less likely to rise this year. | Sterling sharply when the data was released. It has subsided further as traders concluded that UK interest rates are now less likely to rise this year. |
| The pound is now trading at $1.3010, a whole cent lower than early this morning. | The pound is now trading at $1.3010, a whole cent lower than early this morning. |
| Inflation lower than expected at 2.6%. Sterling falls in response. pic.twitter.com/OniYRaa75J | Inflation lower than expected at 2.6%. Sterling falls in response. pic.twitter.com/OniYRaa75J |
| Our economics editor, Larry Elliott, says consumers should cheer today’s inflation data: | Our economics editor, Larry Elliott, says consumers should cheer today’s inflation data: |
| Firstly, it means the squeeze on real incomes in 2017 and 2018 will be less severe and less pronounced than some have feared. Secondly, it removes the threat of an interest rate rise from the Bank of England. An August increase in the cost of borrowing, while never looking all that likely, is now off the agenda. | Firstly, it means the squeeze on real incomes in 2017 and 2018 will be less severe and less pronounced than some have feared. Secondly, it removes the threat of an interest rate rise from the Bank of England. An August increase in the cost of borrowing, while never looking all that likely, is now off the agenda. |
| Here’s his full analysis: | Here’s his full analysis: |
| Surprise drop in UK inflation is good news for consumers | Larry Elliott https://t.co/R1zWqQqNkE | Surprise drop in UK inflation is good news for consumers | Larry Elliott https://t.co/R1zWqQqNkE |