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UK inflation unexpectedly holds steady at 2.6% in July- business live
UK CPI inflation unexpectedly holds steady at 2.6% in July - business live
(35 minutes later)
10.11am BST
10:11
Both measures of inflation have been rising steadily since a year ago:
10.08am BST
10:08
Here’s our news story on how the rise in the retail price index will lead to higher rail fares:
10.03am BST
10:03
Here’s some commentary on inflation:
Headline and core CPI weaker than expected but producer price inflation a touch stronger than consensus. 1/2
1. So for the second successive month UK inflation is better than expected and pipeline inflation continues to ease too.
.2 last month year on year inflation fell in June to 2.6pc & has now held at that in July at 2.6pc which is good news for the economy
CPI remained unchanged at 2.6% in July. However the BoE expect inflation to rise further this year, peaking at around 3% in Autumn #ukmfg pic.twitter.com/77bQSgMJ3T
UK CPI @ 2.6% in July. Only 3/12 component parts (transport, recreation & communication) have fallen in last 2 mths - make up 33% of basket pic.twitter.com/H9c4SAF7Ka
Weaker than expected #UK #CPI flat (2.6%, core 2.4%), weaker than E core PPI output (2.4%) final nail in coffin of H2 #MPC rate hike: £ down
9.52am BST
09:52
Here’s the UK Treasury’s response to the inflation figures:
Although inflation is likely to start falling next year, we understand some families are concerned today about the cost of living. That is why we have given the lowest paid a pay rise through the National Living Wage and are cutting taxes for 31 million people.
9.50am BST
09:50
The pound has edged slightly lower against the dollar following the inflation data. It now stands at $1.2923, down 0.3%, as the prospects of any imminent rate rise fade further.
Updated
at 10.03am BST
9.49am BST
09:49
Key charts
Fuel prices fell by 1.3% between June and July 2017, the fifth successive month of price decreases, said the ONS. Over the same period last year they rose by 0.7%. There were smaller rises for a range of goods and services, said the ONS:
The 12-month inflation rates for some of the broad groupings (namely food and non-alcoholic beverages; clothing and footwear; miscellaneous goods and services; furniture and household goods) have edged up to the highest seen for several years.
9.41am BST
9.41am BST
09:41
09:41
This chart shows how the consumer prices index (in yellow) had been rising fairly steadily since last summer until last month’s dip:
This chart shows how the consumer prices index (in yellow) had been rising fairly steadily since last summer until last month’s dip:
9.35am BST
9.35am BST
09:35
09:35
The Office for National Statistics said falling motor fuel prices were offset by higher prices for clothes, utilities and food.
The Office for National Statistics said falling motor fuel prices were offset by higher prices for clothes, utilities and food.
House prices rose 4.9% in June, said the ONS, compared to 5% in May. This is the weakest since March.
House prices rose 4.9% in June, said the ONS, compared to 5% in May. This is the weakest since March.
9.33am BST
9.33am BST
09:33
09:33
The consumer price index had been expected to rise from 2.6% to 2.7%, rather than hold steady.
The consumer price index had been expected to rise from 2.6% to 2.7%, rather than hold steady.
But it still means that living standards are being squeezed.
But it still means that living standards are being squeezed.
Wage growth has been lagging behind price rises and this is expected to continue in coming months. Economists expect average weekly earnings to have grown by 1.8% year-on-year in the three months to June, the same figure as last time. Stripping out bonuses, the figure is forecast to be 2%.
Wage growth has been lagging behind price rises and this is expected to continue in coming months. Economists expect average weekly earnings to have grown by 1.8% year-on-year in the three months to June, the same figure as last time. Stripping out bonuses, the figure is forecast to be 2%.
9.31am BST
9.31am BST
09:31
09:31
UK INFLATION STEADY
UK INFLATION STEADY
Breaking: Britain’s inflation rate has unexpectedly held steady at 2.6% in July,.
Breaking: Britain’s inflation rate has unexpectedly held steady at 2.6% in July,.
That’s the consumer price index, which is the Bank of England’s preferred measure when considering the level of interest rates.
That’s the consumer price index, which is the Bank of England’s preferred measure when considering the level of interest rates.
The retail price index has climbed to a higher than expected 3.6%. and this is bad news for train passengers: it is the level used by the government to set rail fare increases.
The retail price index has climbed to a higher than expected 3.6%. and this is bad news for train passengers: it is the level used by the government to set rail fare increases.
9.19am BST
09:19
Another reason for the strengthening of the dollar is Monday’s comment from one of the US Federal Reserve members about the prospects of further interest rate rises this year. Lee Hardman, currency analyst at MUFG explains:
The US dollar has strengthened following relatively hawkish comments from Fed Vice Chair William Dudley, who stated that he would “be in favour of doing another rate hike later this year” if the economy continues to hold up in line with his expectations. The recent softer-than-expected US inflation readings do not appear to have dampened his appetite to continue raising rates gradually as much as the market is currently anticipating.
He also signalled that market expectations for a September announcement from the Fed on when it plans to begin shrinking their balance sheet were not “unreasonable”. Overall the comments should offer some support for the US dollar in the near-term but the market is likely to remain sceptical over the likelihood of another rate hike later this year at the current juncture.
9.13am BST
09:13
Ahead of the UK inflation figures, here’s a list of what economists are expecting the figure to be at the year end:
Here's who's predicting what UK inflation will be at the end of this year. pic.twitter.com/T3uaFKQ7oU
9.05am BST
09:05
Markets are - just about - holding onto their early gains but Rebecca O’Keefe, head of investment at Interactive Investor, is urging caution:
The ease with which equity markets have shrugged off last week’s woes is reassuring, but also a little bit frightening. Reassuring in that it confirms there is a wave of liquidity willing and actively looking for buying opportunities on any dips. Frightening in that markets appear to be utterly invincible to any threat, despite potentially stretched valuations.
It looked like the market was at a tipping point last week, but the robust rally over the past two days suggests that there are still plenty of investors who think otherwise. Trying to call the top of this market has been a fool’s errand over the past few months and the weight of money supporting the market doesn’t show any sign of abating.
Meanwhile after the latest Brexit moves and ahead of the UK inflation figures, the pound is still managing to keep fairly steady, down just 0.2% against the dollar at $1.2939. The dip is partly due to the US currency strengthening as tensions over North Korea ease somewhat.
Updated
at 9.10am BST
8.26am BST
08:26
8.19am BST
08:19
The prospect of a deal between the UK and the EU to retain the key benefits of the customs union for a period following Brexit has also done little to lift the pound. Neil Wilson, senior market analyst at ETX Capital, said:
Sterling didn’t budge much at all despite signs we may be in for a smoother Brexit. There was little to no uplift so far from the proposal for Britain to have a customs union with the EU for some years after the official Brexit date in 2019.
The market is treating anything from London with due caution, rightly so given the open splits in the cabinet and precarious tenure of Theresa May.
The real test comes when the third round of Brexit talks begin. If it flies with Michel Barnier and co it could be a lot more pound positive than we’re seeing now. There are also doubts about whether this would be palatable for the Brexit camp in parliament and among voters if it involves compromises on the divorce bill and the free movement of people. It also doesn’t address services, although it is a pretty good guide to what the government will pursue on that front.
If you’re a pound bull this looks like a big step, and a signal that the softer transition side in government is winning the argument, but the sanguine response from the markets only highlights how far we have to go in the negotiation process.
We’ve also got the CPI inflation data out at 09:30 that is keeping money on the side lines for the time being. A rise to 2.7% is expected which is not going to shift the dial on what the market expects from the Bank of England. It will have to be a big beat (which looks unlikely given the retreat last month) to get people talking up a rate hike this year again.”
8.15am BST
08:15
European markets open higher
With the easing of tensions over North Korea, markets are edging higher at the open.
Ahead of the UK inflation figures, the FTSE 100 has added 0.11% while Germany’s Dax opened 0.5% higher and France’s Cac and Spain’s Ibex are both up 0.4%.
8.09am BST
08:09
Here’s World First economist Jeremy Cook on the UK inflation figures and the possible effect on the pound:
Gotta say that today’s UK CPI release, unless an absolute flyer, is likely to be negative sterling. Anything on consensus or slightly above
is unlikely to prompt people to buy the pound if they believe that the Bank of England hasn’t got the stomach for a rate hike and any fall
in inflation naturally takes the pressure off. Indeed, a very low number could be seen as a positive if it undoes some of the real wage pain
7.59am BST
07:59
German GDP continues to grow
The German economy grew by 0.6% in the second quarter, which is good news for Chancellor Merkel ahead of the forthcoming elections, even if the figure was slightly below forecasts.
The quarter on quarter rate was lower than a revised 0.7% figure for the first quarter and the forecast of a similar level for the second three months.
The annualised rate of growth was 2.1%, up from 2% in the first quarter. This was well below the 4% recorded by Japan on Monday, but above the UK’s 1.7%.
The Federal Statistics Office said domestic demand grew but foreign trade slipped back:
The quarter-on-quarter comparison (upon adjustment for price, seasonal and calendar variations) shows that positive contributions came from domestic demand. Final consumption expenditure of both households and general government increased markedly... According to provisional calculations, the development of foreign trade, however, had a downward effect on growth because the price-adjusted quarter-on-quarter increase in imports was considerably larger than that of exports.
Carsten Brzeski at ING Bank said:
The German economy continues its strong performance with another above-trend growth rate of 0.6% QoQ in 2Q 17.
Even in its ninth year, the German economic recovery is still going strong. GDP growth in the second quarter came in at 0.6% QoQ, from a slightly upwardly revised 0.7% QoQ in the first quarter of 2017. On the year, the German economy grew by 2.1%.
The detailed growth components will only be released towards the end of the month but based on monthly data the economy continues firing on all cylinders. Growth was driven by public and private consumption, investment and the construction sector.
Germany’s economic success story goes on and on and on. And there is very little reason to fear a sudden end to the current performance, even though some kind of slowdown from current growth rates looks almost inevitable. The drivers supporting the domestic economy, like record high employment, higher wages and government consumption, might lose some momentum along the way, without turning negative. The same holds for the export sector, where a stronger euro, weaker-than-expected US growth and Brexit uncertainty could take some wind out of the sails without bringing exports to a halt.
While the current growth drivers could lose some momentum, investments could emerge as the new engine going into the second half of the year and beyond. Since the small setback at the turn of the year, production expectations have increased continuously. Order books are filled again and inventories have been reduced. Capacity utilisation in the manufacturing industry has also increased continuously since mid-2016 and is now clearly above its historical average. A combination which under normal circumstances should be a safe bet for stronger investments.
With today’s strong growth data, it will be hard for any opposition party to pick out the economy as a main theme for the final stage of the election campaign. Even Angela Merkel’s junior coalition partner, the social-democratic SPD, finds it hard to get the credits from the electorate for the current strong growth performance. When it comes to the economy, it seems as if Angela Merkel sits in a “winner-takes-it-all” position. The lack of new structural reforms or the lack of investments (both in traditional and digital infrastructure) has so far not affected voters’ preferences.
All in all, the German economy is still thriving and currently the biggest risk is probably policy complacency. Still, it looks increasingly unlikely that economic topics will decide the upcoming elections.
7.31am BST
07:31
After last week’s market turmoil caused by North Korea and the US being at loggerheads, an easing of the tensions between the two countries has seen a sense of calm return. Not only does North Korea appear to be toning down some of the belligerent rhetoric, but China has stepped in to comply with UN sanctions against the country.
So after Monday’s gains, markets are expected to move higher again at the open:
Agenda: UK inflation figures and US retail sales in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A busier day for economic figures sees the release of UK inflation data and US retail sales figures for July.
We’ve already had German GDP figures, which have come in slightly below expectations (more shortly.....)
On the UK inflation front, the consumer price index is expected to edge up from 2.6% year on year to 2.7& after a surprise fall in June. Michael Hewson, chief market analyst at CMC Markets UK, said:
When the last set of inflation numbers were released in June they showed a sharp fall in headline CPI from 2.9% to 2.6%, a welcome decline at a time when consumers have been feeling an increasing squeeze on their incomes. This fall raised hopes that inflation may well have peaked and today’s July CPI numbers could well go further in reinforcing that belief, though most expectations are for a tick back higher to 2.7%, while core CPI is also expected to rise to 2.5% from 2.4%.
A rise would be at odds with the recent softening in recent PPI numbers, which have slipped from 20% at the beginning of the year and could come in as low as 6.9% in today’s July numbers, but in line with the Bank of England’s forecasts which suggest we could see 3% before year end.
Despite the Bank’s recent dovishness regarding interest rates, any increase could put that conviction to the test. But with the pound steady at $1.2963, the market clearly believes there is no hurry for the next rate rise.
Meanwhile the retail price index - expected to come in at 3.5% - will be of particular interest to Britain’s train passengers (which, let’s face it, is most of us at one point or another.) For some reason the July RPI is used to calculate rail fare increases which come into effect in January, so prepare for further hikes.
Here’s our preview of the inflation figures:
Elsewhere we get US retail sales figures later which could show a pick-up in consumer spending after an underwhelming second quarter.
