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Firms count cost of Carillion collapse; UK inflation falls to 3.0% – business live Firms count cost of Carillion collapse; UK inflation falls to 3.0% – business live
(35 minutes later)
Ian Kernohan, Economist at Royal London Asset Management, is also hopeful that UK inflation has passed its peak:
“Last month saw CPI inflation fall slightly to 3%. Much of the recent rise in inflation was driven by sterling’s devaluation during 2016.
“However, this factor will begin to fade and inflation should fall back towards the 2% target over the coming year, with Producer Prices figures already showing input price inflation falling sharply.”
But Hannah Maundrell, editor in chief of money.co.uk, remains cautious:
“We can finally breathe a small sigh of relief as inflation has slightly fallen. We’re by no means back to the luxury of low inflation but the fact it hasn’t risen again gives us a slight helping hand.
“We aren’t out of the woods yet though, for many of us prices are still rising faster than wages, so purse strings will still be tight. The cost of everyday items like food and household goods as well as transport continue to push up the cost of living, so budgeting is key.
BBC economics correspondent Andrew Verity has dug into the inflation data, and spotted some big cost increases:
A few little horrors from the inflation numbers: Coffee, tea and cocoa up 9.5%. Oils and fats (including butter) up 11.1%. Electricity up 11.4%
But BlackRock’s Rupert Harrison (a former top Treasury official) hopes that the worst is over:
As expected UK inflation seems to be peaking - positive for the consumer outlook https://t.co/s0t7MFEBM6
Fund manager BlackRock, incidentally, is one of the firms who short-sold Carillion’s shares -- the resulting profits mean it isn’t too worried about a cost of living squeeze.....
The pound has dropped by 0.2% following the inflation figures, as City traders calculate that it makes an early interest rate rise less likely.
This has pushed the FTSE 100 index up to 7791 points, a whisker away from a new all-time high.
This drop in inflation shows that the impact of the pound’s sharp tumble after the Brexit vote is now fading.This drop in inflation shows that the impact of the pound’s sharp tumble after the Brexit vote is now fading.
Nancy Curtin, chief investment officer at Close Brothers Asset Management, explains:Nancy Curtin, chief investment officer at Close Brothers Asset Management, explains:
“Consumers will breathe a sigh of relief that escalating living costs are showing signs of abating. The Brexit vote brought with it the side effect of depreciating sterling, and the subsequent rise in import costs, pushing inflation well beyond the Bank of England’s target.“Consumers will breathe a sigh of relief that escalating living costs are showing signs of abating. The Brexit vote brought with it the side effect of depreciating sterling, and the subsequent rise in import costs, pushing inflation well beyond the Bank of England’s target.
These effects are dissipating somewhat, and core inflation remains lower still.These effects are dissipating somewhat, and core inflation remains lower still.
But she also warns that real wage growth “remains elusive”, so household budgets will remain tight until earnings accelerate.But she also warns that real wage growth “remains elusive”, so household budgets will remain tight until earnings accelerate.
Britain’s financial ‘pinch’ seems to be easing, says Richard Lim, chief executive of Retail Economics:Britain’s financial ‘pinch’ seems to be easing, says Richard Lim, chief executive of Retail Economics:
“The good news is that inflation appears to have peaked. We expect inflation to fall fairly sharply, to around 2.5% by Spring, which will ease the pressure on household budgets.“The good news is that inflation appears to have peaked. We expect inflation to fall fairly sharply, to around 2.5% by Spring, which will ease the pressure on household budgets.
“That said, food inflation remains near four-year high and petrol prices rose sharply as the continued impact of Brexit and rising commodity prices fed through supply chains.“That said, food inflation remains near four-year high and petrol prices rose sharply as the continued impact of Brexit and rising commodity prices fed through supply chains.
This is from James Tucker of the Office for National Statistics:This is from James Tucker of the Office for National Statistics:
Rising air fares having a smaller impact on headline #inflation than last year and falling cost of various toys and games helped nudge down inflation in December. Partially offset by rising tobacco prices, because of duty increases.Rising air fares having a smaller impact on headline #inflation than last year and falling cost of various toys and games helped nudge down inflation in December. Partially offset by rising tobacco prices, because of duty increases.
The UK government will be relieved to see Britain’s inflation rate fall, says Dennis de Jong, managing director at UFX.com:The UK government will be relieved to see Britain’s inflation rate fall, says Dennis de Jong, managing director at UFX.com:
“Amidst the negative headlines around the collapse of Carillion, there is some more positive news for Prime Minister Theresa May this morning, as December’s inflation figure has eased slightly from its six-year high in November.“Amidst the negative headlines around the collapse of Carillion, there is some more positive news for Prime Minister Theresa May this morning, as December’s inflation figure has eased slightly from its six-year high in November.
“With inflation dropping, and sterling back to its highest level since the Brexit referendum, there is a growing feeling of optimism around the British economy at the moment, with many predicting inflation will fall closer to the Bank of England’s 2% target in 2018.“With inflation dropping, and sterling back to its highest level since the Brexit referendum, there is a growing feeling of optimism around the British economy at the moment, with many predicting inflation will fall closer to the Bank of England’s 2% target in 2018.
“However, with wage growth lagging well behind, it will be a long time before this positive news translates into people having more money in their pockets.”“However, with wage growth lagging well behind, it will be a long time before this positive news translates into people having more money in their pockets.”
Good news for households -- Danske Bank analysts suggest Britain’s inflation rate may have now peaked.Good news for households -- Danske Bank analysts suggest Britain’s inflation rate may have now peaked.
🇬🇧Signs that #UK core inflation has peaked, perhaps because $GBP depreciation effect has peaked. In our view, #inflation is set to move lower (unlike the latest projections from Bank of England) $GBPUSD $EURGBP #brexit pic.twitter.com/iGqB6EpKqt🇬🇧Signs that #UK core inflation has peaked, perhaps because $GBP depreciation effect has peaked. In our view, #inflation is set to move lower (unlike the latest projections from Bank of England) $GBPUSD $EURGBP #brexit pic.twitter.com/iGqB6EpKqt
Bad new for workers -- WorldFirst economist Jeremy Cook fears wages won’t overtake inflation for some timeBad new for workers -- WorldFirst economist Jeremy Cook fears wages won’t overtake inflation for some time
Inflation slips but real wages are still negative, long road to travel before workers are getting richer. Keys for the Bank of England now are wages and productivity, less so movements in CPI.Inflation slips but real wages are still negative, long road to travel before workers are getting richer. Keys for the Bank of England now are wages and productivity, less so movements in CPI.
Economist Rupert Seggins flags up that ‘core inflation’, which strips out volatile factors like food and energy, has dropped.Economist Rupert Seggins flags up that ‘core inflation’, which strips out volatile factors like food and energy, has dropped.
UK inflation slowed to 3%y/y in December, as expected, with air fares the primary reason. More importantly, core inflation slowed by more than expected to 2.5%y/y. pic.twitter.com/XyhPTFI2l7UK inflation slowed to 3%y/y in December, as expected, with air fares the primary reason. More importantly, core inflation slowed by more than expected to 2.5%y/y. pic.twitter.com/XyhPTFI2l7
But financial journalist Simon Read points out that high street saving accounts aren’t keep pace with the cost of living.But financial journalist Simon Read points out that high street saving accounts aren’t keep pace with the cost of living.
Inflation drops but still leaves savers with shrinking nest eggs https://t.co/3L2ivvQUWhInflation drops but still leaves savers with shrinking nest eggs https://t.co/3L2ivvQUWh
Despite December’s dip in inflation, the cost of food, household goods and transport services pushed the cost of living up.Despite December’s dip in inflation, the cost of food, household goods and transport services pushed the cost of living up.
The Office for National Statistics says the downward effect on inflation came mainly from air fares, along with a fall in the prices of a range of recreational goods, particularly games and toys.The Office for National Statistics says the downward effect on inflation came mainly from air fares, along with a fall in the prices of a range of recreational goods, particularly games and toys.
This chart shows how inflation (in yellow) has finally started falling for the first time in six months.
Newsflash: Britain’s inflation rate has fallen for the first time since last June.
The Consumer Prices index rose by 3.0% in December, down from 3.1% in November (a six-year high)
That means that Britain’s cost of living squeeze has eased a little (although prices are still rising faster than wages, which grew by 2.3% in the last year).
More to follow....
The collapse of #Carillion dominates this morning's front pages. pic.twitter.com/xeuHJWdZIc
Economics professor Mariana Mazzucato says Carillion’s collapse should trigger a fundamental rethink about how public services are supplied, and paid for:
Outsourcing to companies like Carillion= PSEUDO privatisation. Parasitic contracts mean income for company not from clients in ‘market’ but from government through a guaranteed profit margin. Need complete rethink how to run public services for public value not shareholder value.
Julia Palmer, a partner at Begbies Traynor, says small companies who supplied Carillion face little prospect of being paid.
Palmer told Wake Up To Money:
There’s an order of priority. Secured creditiors will be paid first, ahead of unsecured creditors, of whom there will be be a very large number.
Many sub-contractors will be reeling, wondering how on earth they recover from this.
Top UK government ministers are expected to discuss Carillion’s collapse later today, when Theresa May’s cabinet meet at Downing Street.
Last night, ministers held a meeting on the crisis. Afterwards, Cabinet Office minister David Lidington claimed efforts to deal with the crisis had “gone pretty well”.
Lidington added:
“The message today was that day one had gone pretty well, people were turning up to work, we had not had reports of any serious disruption to service delivery.”
UK’s horticultural services company Flora-tec has been badly hit by the collapse of Carillion, giving a chilling example of the ‘domino effect’ that could hit the UK economy.
The firm faces a loss of £800,000 on work carried out for Carillion -- and took the dramatic step of laying off 10 people yesterday after the liquidation.
Andy Bradley, managing director of Flora-tec, told the BBC’s Wake Up To Money programme that his firm provided ‘ground maintenance’ at schools and hospitals. His staff were up at 3am during last month’s cold snap -- clearing snow and putting salt down.
But he doesn’t expect to be paid for that work; a serious blow, as £800,00 is over 10% of annual turnover.
Bradley warns that he now faces “a massive black hole in our accounts” with no guarantee that he will ever be repaid.
He was damning about the government’s role in the crisis. They encouraged small firms such as Flora-tec to get involved in public sector contracts, Bradley explains. And they also kept handing Carillion contracts after last summer’s profits warning; if Westminster trusted Carillion, why wouldn’t a small SME?
Andy Bradley of landscaping firm Flora-tec has taken a £880k hit and cut 10 jobs following Carillion collapse. "The government continued to give them billion pound contracts... and we took comfort from that," he tells #WakeUptoMoney @bbc5live pic.twitter.com/yHdwTyQpb1
Yesterday’s liquidation was a ‘sucker punch’ says Bradley, adding:
I had to make 10 people redundant yesterday. that’s 10 people with mortgages and car loans It’s an absolute disgrace...
I’ve got people to pay. I’ve not got the money to pay them.
Infrastructure investment company John Laing has told the City that it can handle Carillion’s collapse.
John Laing has nine ‘operational PPP (public partnership) projects where Carillion are the Facilities Management provider, 4 schools projects, 4 emergency services projects and 1 road project.
But Carillion’s demise isn’t a shock - John Laing has drawn up contingency plans, and is now seeking to replace Carillion with another facilities management (FM) firm without disruption
John Laing says:
The Investment Adviser’s asset management team have been aware of the issues affecting Carillion and have had contingency plans in place for some time.
These have involved discussions with a number of potential replacement providers and the Investment Adviser is in the process of implementing these contingency plans and seeking to appoint alternative FM providers on all of the 9 projects to replace Carillion.
At this stage the Investment Adviser expects that this can be achieved with minimal service disruption and minimal additional cost.
BUT... that may also mean job losses at Carillion, if companies such as John Laing take their business elsewhere....
Several construction and engineering firms have updated the City this morning about the Carillion crisis.
Van Elle, a geotechnical engineering* contractor, told shareholders that it is currently owed £1.6m by Carillion for various contracts in December, and work taking place in January.
Van Elle says it faces an ‘adverse financial impact’ if it can’t get this money back
It also had orders from Carillion worth £2.5m of revenue, for this year and beyond [for comparison, the company’s revenues were £94m last year]
CEO Jon Fenton says Carillion’s collapse is ‘disappointing’. Shares in Van Elle have plunged by almost 10% in early trading
* - complicated foundations, ground work, that kind of thing.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, business and the eurozone.
Britain’s cost of living squeeze may finally be easing, after a tough year for UK households.
New inflation figures, due this morning, are expected to show that price pressures eased a little last month.
The Consumer Prices Index is tipped to have fallen to 3.0% in December, down from near six-year high of 3.1% struck in November.
If so, that would suggest that the slump in the pound after the EU referendum has finally worked its way through the system. And with sterling back at a post-Brexit hit - close to the giddy heights of $1.38 -- inflation might keep dipping in 2018.
However, few citizens will be firing off any leftover party poppers. Wages are only growing at around 2.3% per year, which means people are still getting a pay cut in real terms.
Michael Hewson of CMC Markets suspects that inflation could be ‘stickier’ than some economists expect.
He says:
Last month the Bank of England governor found himself having to pen a letter to the Chancellor of the Exchequer explaining the reasons as to why the Bank of England had exceeded its headline inflation target by more than 1%, after CPI came in at 3.1% for November, the highest level since March 2012. Later this morning we’ll find out if the December numbers have fallen back from those heady peaks.
While most expectations are for that indeed to be the case, with a drop back to 3%, one can’t help feeling that this optimism might well be misplaced.
Airfares were a key component that underpinned the CPI number in November and it is quite likely that could happen again, furthermore fuel prices also rose in December. The one bright spot could well be food and drink with shop price inflation expected to be on the soft side. Core CPI is expected to slip back a touch to 2.6% from 2.7%
It seems more probable that inflation is likely to remain stickier than usual for the next couple of months as the January effect of higher rail fares also bleeds through into the numbers. It should then start to soften towards the end of Q1 assuming the pound stays at its current levels.
We’ll also be keeping an eye on the Carillion crisis.
The demise of the UK construction and services group is turning into a major political row; as we covered last night, Labour are calling it a ‘watershed moment’, and demanding an end to ‘rip-off’ privatisations.
Thousands of Carillion workers are now nervously wondering about their future, as the government is only protecting staff on private sector work until Wednesday.
Scores of small firms up and down the country also face disruption and the threat of unpaid bills, and may soon be taking tough decisions.
But life goes in on the City; retailer JD Sports, cakes and sauces maker Premier Foods, bakers chain Greggs, and estate agent Savills are all reporting results.
JD SPORTS +4%; Christmas sales +3%, sees FY profit ahead of est (£300m v £270-95m) sales growth seen online and thru overseas expansion.
Stat of the day: @PremierFoods_FS sold 220m mince pies last year. Or 3 for every man, woman & child
Greggs says it'll open even more stores in 2018 - after posting its financial figures from last year. Like-for-like sales were up 3.7% #CapitalReports pic.twitter.com/j2bvLUd0tc
Jeremy Helsby to retire as @savills CEO at end of 2018 after a transformational 11 years in the top job. Congrats to Europe CEO Mark Ridley who will succeed him. Here he is (third from left) chairing last night Savills forecast event. pic.twitter.com/w2f31kBIfm
The agenda:
9.30am GMT: UK CPI and RPI inflation figures for December
9.30am GMT: UK house price index for November
1.30pm GMT: US Empire manufacturing data (tracking factory output in and around New York)
We’ll be tracking all the main events through the day...