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| UK CPI inflation unexpectedly holds steady at 2.6% in July - business live | UK CPI inflation unexpectedly holds steady at 2.6% in July - business live |
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| 12.58pm BST | |
| 12:58 | |
| Over in the US, retail sales are due shortly and are expected to show a slight rebound after two months of decline. | |
| In June they fell 0.2% but analysts are forecasting a rise last month to between 0.3% and as much as 0.6%. | |
| HSBC on US Retail Sales: Exp. a pick-up in core measures (support from online sales + restaurants). Auto dealers and gasoline likely fell | |
| 12.13pm BST | 12.13pm BST |
| 12:13 | 12:13 |
| The pound is now down 0.7% against the dollar at $1.2872, while against the euro it is down more than 0.4% €1.0951. Connor Campbell, financial analyst at Spreadex, said: | The pound is now down 0.7% against the dollar at $1.2872, while against the euro it is down more than 0.4% €1.0951. Connor Campbell, financial analyst at Spreadex, said: |
| Sterling turned sour this Tuesday after July’s UK CPI reading fell short of analysts’ forecasts. | Sterling turned sour this Tuesday after July’s UK CPI reading fell short of analysts’ forecasts. |
| While, at 2.6%, inflation is still troublesome – especially since wage growth is lurking around the 1.8% mark – it nevertheless wasn’t as high as the expected 2.7%. More importantly, it’s a decent way away from the 2.9% reading seen in May. And given that the Bank of England didn’t pull the rate hike trigger at that level, they’re not going to do it for anything lower, helping to explain why the pound found itself in such a bad mood once the figure was released. | While, at 2.6%, inflation is still troublesome – especially since wage growth is lurking around the 1.8% mark – it nevertheless wasn’t as high as the expected 2.7%. More importantly, it’s a decent way away from the 2.9% reading seen in May. And given that the Bank of England didn’t pull the rate hike trigger at that level, they’re not going to do it for anything lower, helping to explain why the pound found itself in such a bad mood once the figure was released. |
| Cable more than doubled its losses and now finds itself back below $1.29 after plunging 0.7%, while against the euro sterling switched from a 0.3% rise to a 0.4% fall, dragging it to yet another fresh 10 month nadir. This allowed the FTSE to overcome its early reticence, the UK index climbing 25 points to sit just underneath the 7400 it abandoned during last week’s North Korea-fearing trading. | Cable more than doubled its losses and now finds itself back below $1.29 after plunging 0.7%, while against the euro sterling switched from a 0.3% rise to a 0.4% fall, dragging it to yet another fresh 10 month nadir. This allowed the FTSE to overcome its early reticence, the UK index climbing 25 points to sit just underneath the 7400 it abandoned during last week’s North Korea-fearing trading. |
| 11.54am BST | 11.54am BST |
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| UK inflation may have come in lower than expected in July but it is higher than other major economies: | UK inflation may have come in lower than expected in July but it is higher than other major economies: |
| UK inflation remains stable at 2.6pc in July, but well ahead of 2pc target and other major western economies. pic.twitter.com/hcJnCDE3Ns | UK inflation remains stable at 2.6pc in July, but well ahead of 2pc target and other major western economies. pic.twitter.com/hcJnCDE3Ns |
| 11.41am BST | 11.41am BST |
| 11:41 | 11:41 |
| More on the pound’s weakness: | More on the pound’s weakness: |
| Trade-weighted GBP , is at its lowest level since Nov 2016. It is only 2% away from the lows made during last year's Tory Party Conference pic.twitter.com/XhWvE3u542 | Trade-weighted GBP , is at its lowest level since Nov 2016. It is only 2% away from the lows made during last year's Tory Party Conference pic.twitter.com/XhWvE3u542 |
| 11.18am BST | 11.18am BST |
| 11:18 | 11:18 |
| Here’s our economics editor Larry Elliott on inflation and the rail fare increases: | Here’s our economics editor Larry Elliott on inflation and the rail fare increases: |
| Rail commuters facing a steep 3.6% increase in ticket prices might find it tough to accept but there is light at the end of the tunnel for UK inflation. | Rail commuters facing a steep 3.6% increase in ticket prices might find it tough to accept but there is light at the end of the tunnel for UK inflation. |
| Rising prices have been one of the big economic stories of the past 12 months, but for the past two months the financial markets have been surprised by the weakness of cost-of-living pressures. | Rising prices have been one of the big economic stories of the past 12 months, but for the past two months the financial markets have been surprised by the weakness of cost-of-living pressures. |
| The reason for that is simple: the two factors that have been driving inflation higher since the summer of 2016 – higher global oil prices and the sharp fall in the value of sterling after the EU referendum – have almost washed through the system. | The reason for that is simple: the two factors that have been driving inflation higher since the summer of 2016 – higher global oil prices and the sharp fall in the value of sterling after the EU referendum – have almost washed through the system. |
| A quick look at the Office for National Statistics data for producer prices helps explain what has been going on. Producer prices are a measure of inflation early in the supply chain, since they gauge both the cost to firms of buying in fuel and raw material, and the prices of goods as they leave factory gates. | A quick look at the Office for National Statistics data for producer prices helps explain what has been going on. Producer prices are a measure of inflation early in the supply chain, since they gauge both the cost to firms of buying in fuel and raw material, and the prices of goods as they leave factory gates. |
| Fuel and raw material prices rose fast in the second half of 2016, with the annual rate of increase peaking at 19.9% in January. Since then, though, it has fallen month after month, dropping from 10% in June to 6.5% in July. | Fuel and raw material prices rose fast in the second half of 2016, with the annual rate of increase peaking at 19.9% in January. Since then, though, it has fallen month after month, dropping from 10% in June to 6.5% in July. |
| Larry’s full analysis is here: | Larry’s full analysis is here: |
| 11.16am BST | 11.16am BST |
| 11:16 | 11:16 |
| The overall inflation figures may be understating the real cost of living for many people, says Simon McCulloch, director of comparethemarket.com: | The overall inflation figures may be understating the real cost of living for many people, says Simon McCulloch, director of comparethemarket.com: |
| The fact that inflation has stayed at 2.6% tells only part of the story and certain segments of society are feeling the effects more than others. Our research shows that household bills are increasing at twice the rate of today’s inflation figure, indicating that families - a group that may be more exposed to higher energy, insurance, petrol and broadband costs as well as mortgage payments - are affected in a more acute way than the ONS’s headline 2.6% figure suggests. | The fact that inflation has stayed at 2.6% tells only part of the story and certain segments of society are feeling the effects more than others. Our research shows that household bills are increasing at twice the rate of today’s inflation figure, indicating that families - a group that may be more exposed to higher energy, insurance, petrol and broadband costs as well as mortgage payments - are affected in a more acute way than the ONS’s headline 2.6% figure suggests. |
| Whereas certain elements of the inflationary basket of goods may be remaining flat, households which are already feeling the squeeze are experiencing a period of rapid “billflation”, with the average household paying out £845 a month. | Whereas certain elements of the inflationary basket of goods may be remaining flat, households which are already feeling the squeeze are experiencing a period of rapid “billflation”, with the average household paying out £845 a month. |
| 11.10am BST | 11.10am BST |
| 11:10 | 11:10 |
| Pound at lowest level for a month against the dollar | Pound at lowest level for a month against the dollar |
| Even so, the pound is not acting as if a rate rise is on the cards any time soon. It is now down 0.52% at $1.2893 against the dollar - its lowest level for a month - and 0.35% lower against the euro at €1.0967. | Even so, the pound is not acting as if a rate rise is on the cards any time soon. It is now down 0.52% at $1.2893 against the dollar - its lowest level for a month - and 0.35% lower against the euro at €1.0967. |
| Fawad Razaqzada, market analyst at Forex.com, said: | Fawad Razaqzada, market analyst at Forex.com, said: |
| The pound has been largely out of favour ever since the Bank of England’s last policy meeting a couple of weeks ago, where only two Monetary Policy Committee members voted for a rate rise. Given the recent rise in inflation and the general improvement in the UK economy, the markets were surprised by the BoE’s dovishness. But today’s release of the latest inflation data for the month of July underscores the BoE’s cautious approach... the pound’s immediate reaction was a swift drop. | The pound has been largely out of favour ever since the Bank of England’s last policy meeting a couple of weeks ago, where only two Monetary Policy Committee members voted for a rate rise. Given the recent rise in inflation and the general improvement in the UK economy, the markets were surprised by the BoE’s dovishness. But today’s release of the latest inflation data for the month of July underscores the BoE’s cautious approach... the pound’s immediate reaction was a swift drop. |
| The fall in the pound has given a lift to the FTSE 100, especially its large number of overseas earners. The leading index is now up 0.4% to a day’s high of 7384. | The fall in the pound has given a lift to the FTSE 100, especially its large number of overseas earners. The leading index is now up 0.4% to a day’s high of 7384. |
| 11.01am BST | 11.01am BST |
| 11:01 | 11:01 |
| Well, it seems not everyone thinks a UK interest rate rise before long can be ruled out. Nick Dixon, Pension Director at Aegon, said: | Well, it seems not everyone thinks a UK interest rate rise before long can be ruled out. Nick Dixon, Pension Director at Aegon, said: |
| After last month’s surprise dip, inflation remains above target, although it has not continued its upward march in the way many expected. While concerns about stagnant wages, anaemic economic growth, and a reliance on cheap debt remain, sustained above-target inflation is continuing to build the case for an interest rates rise in the not-too-distant future. | After last month’s surprise dip, inflation remains above target, although it has not continued its upward march in the way many expected. While concerns about stagnant wages, anaemic economic growth, and a reliance on cheap debt remain, sustained above-target inflation is continuing to build the case for an interest rates rise in the not-too-distant future. |
| Such an increase would present new challenges, and new opportunities, for those owning investments whose valuations are linked with interest rates. All asset classes feel richly valued at present so we take a cautious view in aggregate, with particular concerns around fixed interest, real estate, non-sterling assets and US equities where valuations look particularly high. | Such an increase would present new challenges, and new opportunities, for those owning investments whose valuations are linked with interest rates. All asset classes feel richly valued at present so we take a cautious view in aggregate, with particular concerns around fixed interest, real estate, non-sterling assets and US equities where valuations look particularly high. |
| 10.45am BST | 10.45am BST |
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| The Federation of Small Businesses has called for government help for companies to deal with inflationary pressures. National chairman Mike Cherry, said: | The Federation of Small Businesses has called for government help for companies to deal with inflationary pressures. National chairman Mike Cherry, said: |
| Operating costs for small firms are now at their highest in four years. Increasing inflationary pressure has coincided with a bruising business rates revaluation and rising employment costs. Our entrepreneurs are paying themselves less and further increasing prices in an attempt to handle the strain. Four in ten small firms raised prices in response to April’s National Living Wage increase. | Operating costs for small firms are now at their highest in four years. Increasing inflationary pressure has coincided with a bruising business rates revaluation and rising employment costs. Our entrepreneurs are paying themselves less and further increasing prices in an attempt to handle the strain. Four in ten small firms raised prices in response to April’s National Living Wage increase. |
| A hike in rail fares in line with today’s RPI will put further pressure on the consumer pocket, leaving all concerned with less to spend and invest. The Government should consider whether this inflationary measure is fit for purpose in the twenty-first century. | A hike in rail fares in line with today’s RPI will put further pressure on the consumer pocket, leaving all concerned with less to spend and invest. The Government should consider whether this inflationary measure is fit for purpose in the twenty-first century. |
| The Chancellor needs to give very careful consideration to the upcoming Budget. With small firms feeling the squeeze, any increase in insurance premium tax, fuel duty or other stealth taxes will be bad for investment and job creation. We need to see all tax reliefs maintained, not least entrepreneurs’ relief, which represents an important incentive for our business owners. | The Chancellor needs to give very careful consideration to the upcoming Budget. With small firms feeling the squeeze, any increase in insurance premium tax, fuel duty or other stealth taxes will be bad for investment and job creation. We need to see all tax reliefs maintained, not least entrepreneurs’ relief, which represents an important incentive for our business owners. |
| Updated | Updated |
| at 10.51am BST | at 10.51am BST |
| 10.39am BST | 10.39am BST |
| 10:39 | 10:39 |
| One general conclusion from today’s inflation figures seems to be that they confirm the Bank of England is unlikely to raise interest rates any time soon. | One general conclusion from today’s inflation figures seems to be that they confirm the Bank of England is unlikely to raise interest rates any time soon. |
| James Smith, economist at ING Bank: | James Smith, economist at ING Bank: |
| July was another disappointing month for UK inflation. Both headline and core CPI remained unchanged in year on year terms as the impact of the pound’s fall failed to offset a 1.3% decline in petrol prices. It’s hard to pinpoint the weakness to any one-off quirks, but sizeable declines in the prices of clothing, footwear and household goods may potentially suggest that retailers have again had to cut prices to get shoppers buying their summer wares. | July was another disappointing month for UK inflation. Both headline and core CPI remained unchanged in year on year terms as the impact of the pound’s fall failed to offset a 1.3% decline in petrol prices. It’s hard to pinpoint the weakness to any one-off quirks, but sizeable declines in the prices of clothing, footwear and household goods may potentially suggest that retailers have again had to cut prices to get shoppers buying their summer wares. |
| Whatever the reason though, we still think headline inflation looks set to inch closer to 3% towards the end of this year as the full extent of sterling’s near-20% fall since November 2015 filters through. But the big question for policymakers is where inflation would be if this currency effect is stripped out. One way of looking at this, by excluding goods with a high import-intensity, suggests that inflation would be slightly below 2% if the pound’s fluctuations are removed. | Whatever the reason though, we still think headline inflation looks set to inch closer to 3% towards the end of this year as the full extent of sterling’s near-20% fall since November 2015 filters through. But the big question for policymakers is where inflation would be if this currency effect is stripped out. One way of looking at this, by excluding goods with a high import-intensity, suggests that inflation would be slightly below 2% if the pound’s fluctuations are removed. |
| But what matters for the Bank of England is wage growth. We expect this to hold steady at 2% tomorrow, and in fact, for much of the rest of this year. The combination of slowing economic momentum, political uncertainty and rising import costs mean that firms are likely to have limited incentive to accelerate pay rises. | But what matters for the Bank of England is wage growth. We expect this to hold steady at 2% tomorrow, and in fact, for much of the rest of this year. The combination of slowing economic momentum, political uncertainty and rising import costs mean that firms are likely to have limited incentive to accelerate pay rises. |
| While today’s data will continue to test the patience of some BoE hawks, we expect the committee as a whole to continue ‘looking through’ inflation spikes in favour of slower growth. We don’t expect a rate hike this year. | While today’s data will continue to test the patience of some BoE hawks, we expect the committee as a whole to continue ‘looking through’ inflation spikes in favour of slower growth. We don’t expect a rate hike this year. |
| Jeremy Cook, chief economist at WorldFirst: | Jeremy Cook, chief economist at WorldFirst: |
| The Brexit vote inflation wave may have already crested. While today’s number is lower than we saw a couple of months ago, it does not mean that inflation in itself is low. The defining driver of the run of higher prices has been the devaluation of the pound following the vote to leave the EU, those declines will start to fall out of the calculations in the coming months. | The Brexit vote inflation wave may have already crested. While today’s number is lower than we saw a couple of months ago, it does not mean that inflation in itself is low. The defining driver of the run of higher prices has been the devaluation of the pound following the vote to leave the EU, those declines will start to fall out of the calculations in the coming months. |
| The Bank of England is not under pressure to raise rates from prices at the moment, and will not be by the end of the year. Of course this could all change if sterling continues its recent decline against the euro. | The Bank of England is not under pressure to raise rates from prices at the moment, and will not be by the end of the year. Of course this could all change if sterling continues its recent decline against the euro. |
| The lower than expected number is good news, but its importance can only be truly recognised once the context of tomorrow’s wage numbers and Thursday’s retail sales data is taken into account. | The lower than expected number is good news, but its importance can only be truly recognised once the context of tomorrow’s wage numbers and Thursday’s retail sales data is taken into account. |
| Neil Wilson, senior market analyst at ETX Capital: | Neil Wilson, senior market analyst at ETX Capital: |
| The expected pickup didn’t happen. Inflation remains cooler and the pound dipped as investors had expected a rebound in July following the surprise drop in June...The data doesn’t radically alter the view on the Bank of England, but it certainly cements the belief that a rate hike this year now looks highly unlikely. The market was positioned for a bit more inflation than we’re getting. | The expected pickup didn’t happen. Inflation remains cooler and the pound dipped as investors had expected a rebound in July following the surprise drop in June...The data doesn’t radically alter the view on the Bank of England, but it certainly cements the belief that a rate hike this year now looks highly unlikely. The market was positioned for a bit more inflation than we’re getting. |
| CPI is still expected to peak at 3% later this year before easing back, yet there are signs that inflation may have already peaked. The sterling exchange rate has stabilised, meaning far less pass-through from the weaker pound on the inflation rate. We’re even getting to the stage in the year where the pound will be actually stronger than it was 12 months before, especially against the US dollar. Of course the pass-through from the exchange rate is a little more complex than that, but the broad picture is that the pound is pretty near to where it was last year. | CPI is still expected to peak at 3% later this year before easing back, yet there are signs that inflation may have already peaked. The sterling exchange rate has stabilised, meaning far less pass-through from the weaker pound on the inflation rate. We’re even getting to the stage in the year where the pound will be actually stronger than it was 12 months before, especially against the US dollar. Of course the pass-through from the exchange rate is a little more complex than that, but the broad picture is that the pound is pretty near to where it was last year. |
| If inflation has peaked, it would be good news for British workers, with wages still falling in real terms (confirmation of this trend is expected in tomorrow’s data). It would also be good news for the UK’s consumer-driven economy, which may ultimately be pound positive if it means resilient growth and the Bank thinks it can hike gently without upsetting wider economic confidence. | If inflation has peaked, it would be good news for British workers, with wages still falling in real terms (confirmation of this trend is expected in tomorrow’s data). It would also be good news for the UK’s consumer-driven economy, which may ultimately be pound positive if it means resilient growth and the Bank thinks it can hike gently without upsetting wider economic confidence. |
| Ben Brettell, senior economist at Hargreaves Lansdown: | Ben Brettell, senior economist at Hargreaves Lansdown: |
| It now looks quite possible inflation has peaked, and will fall back further incoming months. The year-on-year increase in producers’ raw material costs fell to 6.5% in July – undershooting forecasts for a 7.0% rise. This was down from 10% in June, the biggest month-to-month slowdown in almost five years. Input prices are a leading indicator for consumer price inflation as higher input prices are often ultimately passed on to the consumer, and therefore a lower number here could bode well for softer consumer prices down the line. | It now looks quite possible inflation has peaked, and will fall back further incoming months. The year-on-year increase in producers’ raw material costs fell to 6.5% in July – undershooting forecasts for a 7.0% rise. This was down from 10% in June, the biggest month-to-month slowdown in almost five years. Input prices are a leading indicator for consumer price inflation as higher input prices are often ultimately passed on to the consumer, and therefore a lower number here could bode well for softer consumer prices down the line. |
| All this is good news for the consumer, as it helps alleviate the continuing squeeze on household finances, though pay is still shrinking in real terms for now. Tomorrow’s labour market update is expected to show wage growth remained at 1.8% for the three months to July. | All this is good news for the consumer, as it helps alleviate the continuing squeeze on household finances, though pay is still shrinking in real terms for now. Tomorrow’s labour market update is expected to show wage growth remained at 1.8% for the three months to July. |
| It’s also good news for borrowers – moderating inflation means less pressure on the Bank of England to consider raising interest rates, and will allow the MPC to remove the sticking plaster of ultra-low interest rates very slowly indeed. With only two of the eight members voting for higher rates earlier this month, it seems even a return to 0.5% is some way off for now. | It’s also good news for borrowers – moderating inflation means less pressure on the Bank of England to consider raising interest rates, and will allow the MPC to remove the sticking plaster of ultra-low interest rates very slowly indeed. With only two of the eight members voting for higher rates earlier this month, it seems even a return to 0.5% is some way off for now. |
| Maike Currie, investment director for personal investing at Fidelity International: | Maike Currie, investment director for personal investing at Fidelity International: |
| The income squeeze on cash-strapped UK consumers continues with July’s inflation reading showing the CPI (Consumer Price Index) remaining at 2.6%. The main drivers behind this month’s food price inflation are a rise in the cost of bread and cereals, meat and fruit. However, this month the main focus will be on the RPI (Retail Prices Index) reading, as the July figure is used to determine by how much rail fares will increase in the new year. Commuters will face an eye-watering 3.6% increase in the cost of ‘anytime’ and season tickets in England and Wales in 2018, adding to mounting expenses. | The income squeeze on cash-strapped UK consumers continues with July’s inflation reading showing the CPI (Consumer Price Index) remaining at 2.6%. The main drivers behind this month’s food price inflation are a rise in the cost of bread and cereals, meat and fruit. However, this month the main focus will be on the RPI (Retail Prices Index) reading, as the July figure is used to determine by how much rail fares will increase in the new year. Commuters will face an eye-watering 3.6% increase in the cost of ‘anytime’ and season tickets in England and Wales in 2018, adding to mounting expenses. |
| UK households continue to feel the squeeze as price rises continue to outpace earnings. Rising inflation coupled with dwindling wage growth means real wages are falling. In its August inflation report, the Bank of England pointed out that uncertainty over the economic outlook may be affecting companies’ willingness to raise pay, projecting that regular pay growth will remain subdued over the rest of 2017. | UK households continue to feel the squeeze as price rises continue to outpace earnings. Rising inflation coupled with dwindling wage growth means real wages are falling. In its August inflation report, the Bank of England pointed out that uncertainty over the economic outlook may be affecting companies’ willingness to raise pay, projecting that regular pay growth will remain subdued over the rest of 2017. |
| The Bank expects inflation to fall back towards the 2% target during 2018 as past increases in fuel prices drop out of the annual comparison, but this will mean very little if our earnings fail to keep up with price rises. | The Bank expects inflation to fall back towards the 2% target during 2018 as past increases in fuel prices drop out of the annual comparison, but this will mean very little if our earnings fail to keep up with price rises. |
| Over the longer term, expect rising inflation to be a fleeting occurrence due to a number of economic trends. First, an aging population limits the size of the global workforce, which by corollary suppresses economic activity. Meanwhile rising inequality and the growing cohort of self-employed people with limited earning power, such as Uber drivers in the ‘gig economy’, means less money is being spent. | Over the longer term, expect rising inflation to be a fleeting occurrence due to a number of economic trends. First, an aging population limits the size of the global workforce, which by corollary suppresses economic activity. Meanwhile rising inequality and the growing cohort of self-employed people with limited earning power, such as Uber drivers in the ‘gig economy’, means less money is being spent. |
| Less economic activity, and less money spent, means prices are unlikely to be driven upwards, keeping a lid on inflation over the long term. | Less economic activity, and less money spent, means prices are unlikely to be driven upwards, keeping a lid on inflation over the long term. |
| If inflation stays low and economic growth remains tepid, there is no reason for the Bank of England to risk the economic recovery by putting up interest rates any time soon. Good news for borrowers, bad news for savers and retirees. | If inflation stays low and economic growth remains tepid, there is no reason for the Bank of England to risk the economic recovery by putting up interest rates any time soon. Good news for borrowers, bad news for savers and retirees. |