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UK inflation rate drops to 2.6%, but wage squeeze continues - business live UK inflation rate drops to 2.6%, but wage squeeze continues - business live
(35 minutes later)
1.07pm BST
13:07
Lunchtime summary: Inflation figure bring some respite
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.
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.
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%.....
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.
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.
“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 a reminder of the key charts:
Economists have warned that families still face a cost of living squeeze.
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.
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.
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.
Inflation lower than expected at 2.6%. Sterling falls in response. pic.twitter.com/OniYRaa75J
1.06pm BST
13:06
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.
Here’s his full analysis:
Surprise drop in UK inflation is good news for consumers | Larry Elliott https://t.co/R1zWqQqNkE
12.47pm BST
12:47
Danske Bank economist Conor Lambe fears that Britain’s wage squeeze is hurting economic growth.
And we could get the proof next Wednesday, when growth figures for the April-June quarter is released.
Here’s his take on today’s inflation figures:
“The CPI inflation rate in the UK was 2.6 per cent in June 2017, lower than the 2.9 per cent observed in May. This fall was mainly due to lower fuel prices.
“The latest labour market data showed that the rate of nominal wage growth over the year to March-May 2017 was 2 per cent. Therefore, despite today’s fall in the inflation rate, real wage growth is still in negative territory.
“Above target inflation, and the accompanying negative real wage growth, is continuing to squeeze UK consumers and this is likely to be reflected in next week’s preliminary estimate of GDP growth in the second quarter of this year.”
12.39pm BST
12:39
Here’s a handy chart, showing how expectations of a UK interest rate rise this year have fallen:
UK CPI comes in at 2.6% vs consensus of 2.9%. Probability of a #BoE hike in Nov fallen from >50% on 1st July to 35% https://t.co/sFTxXBGRAo pic.twitter.com/AdmjNgHKVs
12.02pm BST12.02pm BST
12:0212:02
The Office for National Statistics has also reported that house price inflation has slowed.The Office for National Statistics has also reported that house price inflation has slowed.
Average house prices in the UK rose by 4.7% in the year to May 2017, down from 5.3% in the year to April 2017.Average house prices in the UK rose by 4.7% in the year to May 2017, down from 5.3% in the year to April 2017.
This could be another sign that the economy is slowing, and that households are feeling the squeeze from inflation and weak wage growth.This could be another sign that the economy is slowing, and that households are feeling the squeeze from inflation and weak wage growth.
The East of England saw the fastest growth, at 7.5% year on year.The East of England saw the fastest growth, at 7.5% year on year.
The lowest annual growth was in the North East, where prices increased by 1.6% over the year, followed by London at 3.0%.The lowest annual growth was in the North East, where prices increased by 1.6% over the year, followed by London at 3.0%.
On a regional basis, London continues to be the region with the highest average house price at £481,000, followed by the South East and the East of England, which stand at £316,000 and £284,000 respectively. The lowest average price continues to be in the North East at £127,000.On a regional basis, London continues to be the region with the highest average house price at £481,000, followed by the South East and the East of England, which stand at £316,000 and £284,000 respectively. The lowest average price continues to be in the North East at £127,000.
Despite the slowdown in London, prices across the capital have outstripped the rest of the country since the last recession:Despite the slowdown in London, prices across the capital have outstripped the rest of the country since the last recession:
UpdatedUpdated
at 12.03pm BSTat 12.03pm BST
11.58am BST11.58am BST
11:5811:58
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11.10am BST11.10am BST
11:1011:10
Nick Leung, research analyst at fund manager WisdomTree, says there are three reasons inflation dropped last month:Nick Leung, research analyst at fund manager WisdomTree, says there are three reasons inflation dropped last month:
“Today’s inflation reading is slightly softer than expected, underpinned by a combination of oil price weakness, a stabilising pound and import-cost induced inflationary pressures undermining consumers’ debt-fuelled spending power.”“Today’s inflation reading is slightly softer than expected, underpinned by a combination of oil price weakness, a stabilising pound and import-cost induced inflationary pressures undermining consumers’ debt-fuelled spending power.”
11.04am BST11.04am BST
11:0411:04
As long as wages are subdued, rising inflation is clearly bad news for families.As long as wages are subdued, rising inflation is clearly bad news for families.
James Brown, Partner and head of the UK Consumer & Retail practice at Simon-Kucher & Partners, explains why:James Brown, Partner and head of the UK Consumer & Retail practice at Simon-Kucher & Partners, explains why:
June is the fifth consecutive month where inflation was above the Bank of England target of 2%, and also considerably higher than the 0.5% level recorded in June last year.....June is the fifth consecutive month where inflation was above the Bank of England target of 2%, and also considerably higher than the 0.5% level recorded in June last year.....
The current rate adds more than £50 extra a month to UK households’ monthly expenses covered by CPI compared to the same time last year, putting more pressure on holidays and summer outings budgets.The current rate adds more than £50 extra a month to UK households’ monthly expenses covered by CPI compared to the same time last year, putting more pressure on holidays and summer outings budgets.
The fall in the value of the pound last June has made foreign holidays much more expensive. But even those who say at home will feel the pinch.The fall in the value of the pound last June has made foreign holidays much more expensive. But even those who say at home will feel the pinch.
Brown explains:Brown explains:
Whether families decide to register the children to a kids’ club or summer camp, or whether groups of friends meet for drinks, they will have to pay more for it than they did last year. The figures for June showed that fees for recreational and sporting services went up by 3.5% and beer is 7.5% more expensive than last year.Whether families decide to register the children to a kids’ club or summer camp, or whether groups of friends meet for drinks, they will have to pay more for it than they did last year. The figures for June showed that fees for recreational and sporting services went up by 3.5% and beer is 7.5% more expensive than last year.
10.59am BST10.59am BST
10:5910:59
Britain’s inflation target is 2%, so the Bank of England still faces some pressure to consider raising interest rates to push down the cost of living.Britain’s inflation target is 2%, so the Bank of England still faces some pressure to consider raising interest rates to push down the cost of living.
Calum Bennie, Scottish Friendly’s savings specialist, explains:Calum Bennie, Scottish Friendly’s savings specialist, explains:
“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.
As long as this squeeze continues the Bank of England faces a difficult balancing act. While on the one hand raising interest rates may help to combat inflation, on the other it will cause real pain for homeowners who could see the cost of their mortgages rise.”As long as this squeeze continues the Bank of England faces a difficult balancing act. While on the one hand raising interest rates may help to combat inflation, on the other it will cause real pain for homeowners who could see the cost of their mortgages rise.”
10.56am BST10.56am BST
10:5610:56
The drop in inflation in June may show that the cost of living squeeze is rippling through the economy, and making it hard for shops to raise prices.The drop in inflation in June may show that the cost of living squeeze is rippling through the economy, and making it hard for shops to raise prices.
Ipek Ozkardeskaya of London Capital Markets explains:Ipek Ozkardeskaya of London Capital Markets explains:
The slowdown in inflation suggests that the decline in British real wages may have started to translate into a slower consumer inflation, as anticipated by the Bank of England (BoE) Governor Mark Carney.The slowdown in inflation suggests that the decline in British real wages may have started to translate into a slower consumer inflation, as anticipated by the Bank of England (BoE) Governor Mark Carney.
#BoE #Carney certainly feeling like a King after #UK #inflation release.#GBP hit by softer inflation, #AUD soars https://t.co/oQmT1RUypo pic.twitter.com/CZRN7otEJ3#BoE #Carney certainly feeling like a King after #UK #inflation release.#GBP hit by softer inflation, #AUD soars https://t.co/oQmT1RUypo pic.twitter.com/CZRN7otEJ3
10.29am BST10.29am BST
10:2910:29
Here’s the Treasury’s comment on today’s inflation figures:Here’s the Treasury’s comment on today’s inflation figures:
‘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.‘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.’We are also increasing our free childcare offer to help 400,000 working parents.’
No mention of the public sector pay cap, though, which has caused public splits within Theresa May’s cabinet.No mention of the public sector pay cap, though, which has caused public splits within Theresa May’s cabinet.
10.16am BST10.16am BST
10:1610:16
The Unison union is also alarmed that wages are still being eroded by rising cost of living.The Unison union is also alarmed that wages are still being eroded by rising cost of living.
UNISON assistant general secretary Christina McAnea says public sector workers deserve better:UNISON assistant general secretary Christina McAnea says public sector workers deserve better:
“With inflation much higher than wages, nurses, teaching assistants and care staff are getting poorer.“With inflation much higher than wages, nurses, teaching assistants and care staff are getting poorer.
“The government’s harsh approach to public sector pay is completely out of step with the public mood.“The government’s harsh approach to public sector pay is completely out of step with the public mood.
“Every day the pay cap stays, public sector employees are leaving for better paid jobs elsewhere. And it gets that bit harder for the NHS, police forces, schools and town halls to recruit new staff.“Every day the pay cap stays, public sector employees are leaving for better paid jobs elsewhere. And it gets that bit harder for the NHS, police forces, schools and town halls to recruit new staff.
“The Chancellor should show he understands the financial struggles of millions of families and end the pay cap now.”“The Chancellor should show he understands the financial struggles of millions of families and end the pay cap now.”
10.11am BST
10:11
Ben Brettell, senior economist at Hargreaves Lansdown, says the odds of a UK interest rate rise in August have shrunk.
He writes:
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%.
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.
10.07am BST
10:07
You can read the inflation report online, here.
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
at 10.06am BST
9.39am BST
09:39
This is the first time UK inflation has fallen since last October.
This chart shows how the consumer prices index (in yellow) had rising pretty steadily since last summer: