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UK inflation rate drops to 2.6%, but cost of living squeeze continues - business live
(35 minutes later)
9.36am BST
10.11am BST
09:36
10:11
The drop in inflation last month is mainly due to falling petrol prices, says the Office for National Statistics.
Ben Brettell, senior economist at Hargreaves Lansdown, says the odds of a UK interest rate rise in August have shrunk.
9.31am BST
He writes:
09:31
UK inflation fell unexpectedly in June to 2.6%, easing the pressure on squeezed household budgets and substantially reducing the likelihood of an August interest rate rise. The ONS said the drop was largely due to falling motor fuel prices, although core inflation – which strips out the more volatile components such as fuel and food – also fell, to 2.4%.
UK INFLATION RELEASED
The news sent the pound sharply lower as currency traders adjusted their outlook for interest rates. The Bank of England’s rhetoric has taken an increasingly hawkish tone in recent weeks, with Mark Carney himself saying at the end of last month that “some removal of monetary stimulus is likely to become necessary”. Chief economist Andy Haldane also indicated he might support a rate rise this year. However if today’s pullback in inflation marks the start of a sustained decline, the pressure on the Bank to raise rates will ease.
Breaking! Britain’s inflation rate has fallen to 2.6% in June, down from 2.9% in May.
10.07am BST
That’s a smaller reading than expected; City has expected inflation to remain at last month’s four-year high.
10:07
But it still means that living standards are being squeezed, as wages are only rising by 2% (according to the latest data, released last week).
You can read the inflation report online, here.
More to follow!
10.06am BST
10:06
Fidelity International: UK households are still suffering
This chart shows clearly how UK pay packets aren’t keeping up with the cost of living, despite June’s unexpected drop in inflation.
It’s via Maike Currie, investment director for Personal Investing at Fidelity International.
She says there’s little to cheer in today’s inflation report:
“Today’s inflation numbers show CPI inflation rising from 0.5% in June 2016 to 2.6% a year later - that’s more than a five-fold increase in only a year. While inflation has eased back from May’s reading of 2.9%, thanks largely to a fall in the oil price driving down the cost of fuel, this will be cold comfort for Britain’s cash strapped consumers - inflation is still well above the Bank of England’s 2% target rate and outpacing our earnings.
“Last week’s wage growth figures show regular pay growing at just 2.0% for the three months to May, confirming that 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. Retail sales figures out on Thursday will provide a telling health check on just how spending is fairing given the mounting pressure on British households.
10.00am BST
10:00
No prizes for spotting the moment that the inflation data was released.....
Sterling slides a full cent to $1.3020 as UK inflation posts its biggest fall in over 2 years and throws a spanner in the rate hike works. pic.twitter.com/pSw7jizc1o
9.59am BST
09:59
Katie Schmuecker of the Joseph Rowntree Foundation says the inflation squeeze is hitting poorer Britons the hardest:
Good news: inflation down a bit. Bad news: it's still 2.6% while benefits and tax credits are frozen. Result: squeeze at the bottom
9.55am BST
09:55
TUC: Cost of living squeeze must be tackled
TUC General Secretary Frances O’Grady isn’t celebrating the drop in inflation.
She points out that Britons are still suffering from falling real wages, and urges the government to ditch its 1% cap on public sector pay rises.
O’Grady says:
“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.”
9.52am BST
09:52
UK inflation: snap reaction
ITV’s Robert Peston reckons that inflation has been dampened by the slowing UK economy:
Inflationary pressure in economy has been overstated, with headline rate down from 2.9% to 2.6%. Unsurprising given economic sluggishness
This is the biggest drop in inflation in over two years, points out Jamie McGeever of Reuters:
UK inflation falls to 2.6% in June from 2.9% - the biggest decline in inflation since Feb. 2015.
Kevin Maguire of the Mirror points out that the retail prices index (another measure of inflation) hit 3.5% in June:
Inflation 3.5% on RPI count(incl housing) used by pay negotiators so still nasty cut in value of most wages & living standards. CPI 2.6%
9.47am BST
09:47
Key charts: Why UK inflation has dropped to 2.6%
This chart shows how the cost of transport, and recreation activities, both dropped last month:
Fuel prices fell by 1.1% between May and June 2017, the fourth successive month of price decreases.
There was also a 0.1% drop in recreation - which includes cultural services, and games, toys and hobbies.
However, as you can see, food, furniture and household goods all got more expensive during June.
And on an annual basis, almost everything is more expensive than a year ago:
9.40am BST
09:40
The pound has fallen sharply since the inflation data was released, shedding all this morning’s gains.
Sterling has dropped to $1.3028, almost a cent lower.
City traders think there’s less chance of an early rise in UK interest rates.
Updated
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at 9.34am BST
at 10.06am BST
9.28am BST
9.39am BST
09:28
09:39
Tension is rising in the City, as traders get ready for the inflation figures to hit the wires....
This is the first time UK inflation has fallen since last October.
Stand by your beds, UK inflation data up in 10 minutes! June CPI expected +0.2% m/m, +2.9% y/y. How exciting! ;)
This chart shows how the consumer prices index (in yellow) had rising pretty steadily since last summer:
Stand by your desks! UK inflation data is on its way #CPI #RPI
9.25am BST
09:25
Former Bank policymakers clash (again) over inflation
Angela Monaghan
If inflation remains at a four-year high of 2.9% in June, or even goes higher, it will intensify the debate about when UK interest rates should rise (for the first time since 2007).
Danny Blanchflower and Andrew Sentance, both former members of the Bank’s rate setting monetary policy, (and long-term opponents in economic theory) have been outlining their differing views on the BBC’s Radio 4 Today programme.
Sentance says the Bank should follow the US Fed’s example and raise rates immediately:
“I think inflation is going to go up eventually this year to over 3% and that’s squeezing the living standards of workers and people throughout the economy and I think the worry that I would have is that the bank of England hasn’t responded at all to this situation. It can do something about it. If it gradually raised interest rates that would help support the value of the pound so we would get less imported inflation and that might take some of the pressure off consumers.”
Blanflower on the other hand thinks a rate rise now would be a “self-inflicted wound”.
“Here Andrew goes again he’s been saying the same thing for the last 10 years. This is precisely the wrong thing to do.
“Why would you want to have a self-inflicted wound at a time when Brexit negotiations is taking place, we’ve no idea how it’s going to be resolved and that’s obviously a big problem, firms are sitting thinking what the heck is going to happen. So if you start to raise rates now this is precisely the wrong time to do it. Waiting and watching is sensible. My suspicion is this inflation is temporary and it will start to drop away.”
Updated
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9.14am BST
09:14
Zing! The pound just hit a fresh 10-month high against the US dollar.
Sterling nudged $1.3126 for the first time since September 2016, as Trump’s healthcare setbacks continue to weaken the dollar.
9.03am BST
09:03
City broker Panmure Gordon hopes that the worst of Britain’s inflation surge may be coming to an end.
They told clients this morning that the jump in import prices, following the Brexit vote, seems to have peaked a few months ago. That should mean that inflationary pressures ease a little.
Here’s a snapshot of their note:
8.49am BST
08:49
Economist Rupert Seggins is tweeting some useful charts on inflation:
(1/4) UK inflation today. Consensus is for a 2.9%y/y change in consumer prices in June, same as May. Still means a pay squeeze. pic.twitter.com/uyymUr2LVf
(2/4) Oil price growth has slowed down sharply, meaning less pressure on UK transport price inflation in June. pic.twitter.com/gpJG3fyFkf
(3/4) World food price growth is also slowing. Should limit UK price rises in June with further cooling in the coming months. pic.twitter.com/RFu2UUGexn
(4/4) This is the big one to watch. Core UK price inflation. Pass through from sterling has a way to go yet. pic.twitter.com/ACIKnkXH2E
8.49am BST
08:49
Some City economists have predicted that UK inflation could rise to 3% this morning.
If so, that could send the pound soaring as it would intensify the pressure on the Bank of England to consider raising interest rates.
Hussein Sayed, chief market strategist at FXTM, says:
If headline inflation hits 3% or above, this will indicate a high chance of hiking rates when the BoE meets in August. However, if the numbers pull back, this would ease pressure on the central bank and traders will turn their attention to the Brexit talks.
8.29am BST
08:29
Sterling hits $1.31 as US dollar slides
The pound has risen over $1.31 in early trading, up almost half a cent.
That’s close to last week’s 10-month high, ahead of today’s inflation report.
Most currencies are gaining ground against the US dollar this morning, after president Trump’s attempts to shake up America’s healthcare system hit another roadblock.
Overnight, two senators declared they wouldn’t support Trump’s push to repeal Obamacare. So, with veteran lawmaker John McCain recovering from surgery, the Republicans simply don’t have the votes....especially as some senators fear that millions of Americans, especially with pre-existing conditions, would suffer if the Affordable Care Act was repealed.
This has hurt the dollar, as it undermines hopes that Trump could deliver tax reforms or a big new infrastructure spending programme.
Dollar slumps to a 10-month low after setback on U.S. health-care bill https://t.co/uEGulxj8NA pic.twitter.com/XQvdfDUlPh
This has sent the euro rallying to its highest level against the US dollar since May 2016.
Euro above $1.15, highest since May last year. Up 10% this year. Big test of ECB/periphery tolerance now. pic.twitter.com/QhLmpZboGq
Updated
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8.02am BST
08:02
The agenda: UK inflation
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The cost of living squeeze is one of the hottest topics in Britain today, thanks to the decline in the pound last year and the government’s public sector pay squeeze.
So the main event today is the latest inflation figures, due at 9.30am today. They’re all-but-certain to show that prices are rising faster than wages.
Economists predict that the Consumer Prices Index will hit 2.9% for June, matching May’s figure. That would mean that real wages are continuing to shrink, as basic pay is currently only growing by 2% per year.
Prices are being driven up by the slump in the pound last June, which makes imports much dearer. So today’s figures will also show the impact of Britain’s vote to leave the EU.
Samuel Tombs of Pantheon Economics predicts that food prices drove inflation up last month:
UK CPI inflation probably held steady at 2.9% in June. Yes, fuel prices fell back, but food inflation likely jumped in response to lower £: pic.twitter.com/oyWXLaSu4R
Inflation has surged over the Bank of England’s official target of 2% in recent months, as our economics editor Larry Elliott explains:
Inflation was running at 0.6% when the UK voted to leave the EU in June 2016 but it has risen subsequently as a result of higher oil prices and dearer imports caused by the 12% decline in the value of the pound over the past 12 months.
That has taken the annual inflation rate to its highest level in four years and close to the level where Mark Carney, the governor of the Bank of England, would be forced to write a letter to the chancellor, Philip Hammond, explaining why Threadneedle Street had failed to keep the annual increase in the cost of living to within one percentage point of the government’s 2% target.
Here’s Larry’s preview:
UK inflation figures will shine light on impact of pound's Brexit slidehttps://t.co/xqEgBEVDwt
The ONS will also publish its latest house price index, which may show that prices rose at a slower pace in May.
And over at Winchester cathedral, the Bank of England is preparing to unveil the final design of its new polymer £10 note. We already know it will feature Jane Austen, 200 years after the author’s death.
The agenda:
9am BST: ECB survey of bank lending in the eurozone
9.30am BST: UK inflation report for June
9.30am BST: UK house price survey for May
10am BST: Germany’s ZEW Economic Sentiment Index
Afternoon: Bank of England unveils new Jane Austen £10 note
