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| Real wage squeeze deepens as UK inflation hits six-month high of 2.7% – business live | |
| (35 minutes later) | |
| More bad news for households: inflation could keep rising in the months ahead, especially if Brexit talks flounder (weakening the pound). | |
| If so, that could mean inflation keeps rising faster than total pay. | |
| Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International, explains: | |
| “Today’s inflation figures are a body blow to UK households after the latest CPI figures showed that price rises jumped 2.7% in August, driven largely by increased costs for recreational and cultural goods and services, transport services and clothing. The latest figures mean that wage growth including bonuses (2.6%) has once again fallen behind inflation and means that we are all getting progressively poorer again. | |
| “To rub salt in the wounds there’s also a distinct possibility that inflation could continue to climb as the oil price has recently crept up to over $80 a barrel, meaning we are likely to see prices at the petrol pumps start ticking up. | |
| “And on top of this there’s the ongoing uncertainty around the Brexit negotiations which could put an end to sterling’s recent good run. If recent sterling strength is reversed then the cost of imported goods will start going up again and UK businesses reliant on these goods will need to start hiking prices in order to protect their margins. | |
| City economist Simon French of Panmure Gordon says the slump in the pound in August (it hit a 14-month low) drove inflation up: | |
| Broad-based increase in UK consumer prices with CPI at 2.7% YoY in August meaning real wage growth remained largely flat over the summer months. Secondary pick-up in inflation led by higher energy costs and weaker Pound. | |
| Transport costs just 15% of the CPI basket but now contributing 37% to the headline UK CPI. Set to moderate later in 2018 but highly sensitive to forward path $GBP and spot energy prices. pic.twitter.com/9QEPrWyRQa | |
| Economist Ulrik Bie says rising inflation is pushing more UK people into debt, because wages aren’t rising fast enough. | |
| UK inflation increased to 2.7% in August; the second month of increase after a period of decline. Hence, gains in real wages remain illusive, and growth in private consumption is thus based on lower savings and more debt #macrobond pic.twitter.com/6CBvFyOo7I | |
| The jump in UK inflation to 2.7% is bad news for households. | |
| Average basic pay is only rising by 2.9% per year at present, meaning pay rises are only just keeping ahead of the cost of living. | |
| Total pay, including bonuses, is rising by 2.6% - meaning no real wage growth at all. | |
| That’s particularly disappointing as unemployment is at a 43-year low, which ought to give workers the upper hand in wage negotiations. | |
| The Office for National Statistics, Head of Inflation Mike Hardie, says: | The Office for National Statistics, Head of Inflation Mike Hardie, says: |
| “Consumers paid more for theatre shows, sea fares and new season autumn clothing last month. However, mobile phone charges, and furniture and household goods had a downward effect on inflation. | “Consumers paid more for theatre shows, sea fares and new season autumn clothing last month. However, mobile phone charges, and furniture and household goods had a downward effect on inflation. |
| “UK house prices continued to grow but at their lowest annual rate for five years, driven again by a fall in London. The housing market saw strong growth in the North West, South West and West Midlands.” | “UK house prices continued to grow but at their lowest annual rate for five years, driven again by a fall in London. The housing market saw strong growth in the North West, South West and West Midlands.” |
| Although prices are rising faster in the shops, UK house price inflation has fallen. | Although prices are rising faster in the shops, UK house price inflation has fallen. |
| Average house prices in the UK rose by 3.1% in the year to July 2018, the Office for National Statistics reports, down from 3.2% in June. | Average house prices in the UK rose by 3.1% in the year to July 2018, the Office for National Statistics reports, down from 3.2% in June. |
| This is the lowest UK annual rate since August 2013 when it was 3.0%. | This is the lowest UK annual rate since August 2013 when it was 3.0%. |
| And in London, prices have now shrank by 0.7% over the last year. | And in London, prices have now shrank by 0.7% over the last year. |
| At 2.7%, UK inflation is now at its highest level in six months. | At 2.7%, UK inflation is now at its highest level in six months. |
| Rising transport, clothing and recreational goods prices drove the cost of living higher in August, the Office for National Statistics reports. | Rising transport, clothing and recreational goods prices drove the cost of living higher in August, the Office for National Statistics reports. |
| Food and alcohol prices also drove inflation up: | Food and alcohol prices also drove inflation up: |
| Sterling has jumped to an eight-week high against the US dollar. | Sterling has jumped to an eight-week high against the US dollar. |
| It’s trading over $1.32 for the first time since late-July. | |
| Traders are calculating that higher inflation makes an early interest rate rise more likely. | Traders are calculating that higher inflation makes an early interest rate rise more likely. |
| #Pound at day high vs the dollar. UK August inflation rate rises to 2.7% (est. 2.4%) pic.twitter.com/lku1UONru3 | #Pound at day high vs the dollar. UK August inflation rate rises to 2.7% (est. 2.4%) pic.twitter.com/lku1UONru3 |
| NEWSFLASH: Britain’s inflation rate has jumped to 2.7% in August, putting a squeeze on households again. | NEWSFLASH: Britain’s inflation rate has jumped to 2.7% in August, putting a squeeze on households again. |
| That’s up from 2.5% in July, and dashes expectations that the consumer prices index would drop to 2.4%. | |
| More to follow.... | More to follow.... |
| Over in Tallinn, Bank of England chief economist Andy Haldane is giving a speech to mark the 100th Anniversary of the Bank of Estonia. | Over in Tallinn, Bank of England chief economist Andy Haldane is giving a speech to mark the 100th Anniversary of the Bank of Estonia. |
| Rather than bringing a telegram from the Queen, Haldane has turned up with a speech on central bank communication through the ages (‘oooh, it’s just what I always wanted’). | Rather than bringing a telegram from the Queen, Haldane has turned up with a speech on central bank communication through the ages (‘oooh, it’s just what I always wanted’). |
| In it, he points out that central bankers were notoriously secretive once: | In it, he points out that central bankers were notoriously secretive once: |
| It was only a generation ago that, when asked by Mervyn King for a one-word piece of advice, Paul Volcker replied “mystique”. To that point, opacity rather than transparency coursed through central bankers’ veins. That bloodline ran from Montagu Norman a century ago (“never explain, never apologise”) through to Alan Greenspan a generation ago (“I’ve learned to mumble with great incoherence”). | It was only a generation ago that, when asked by Mervyn King for a one-word piece of advice, Paul Volcker replied “mystique”. To that point, opacity rather than transparency coursed through central bankers’ veins. That bloodline ran from Montagu Norman a century ago (“never explain, never apologise”) through to Alan Greenspan a generation ago (“I’ve learned to mumble with great incoherence”). |
| Today, though, we have forward guidance on interest rates and regular press conferences to help get the message out. | Today, though, we have forward guidance on interest rates and regular press conferences to help get the message out. |
| Education is another key part of the BoE’s strategy, Haldane says. Through its econoME project, it provides classroom materials on the economy and financial system for use in schools. Secondary schools at present, but Haldane has ambitious plans to spread the word: | Education is another key part of the BoE’s strategy, Haldane says. Through its econoME project, it provides classroom materials on the economy and financial system for use in schools. Secondary schools at present, but Haldane has ambitious plans to spread the word: |
| As the name suggests, and like our recent public communications efforts, these materials describe the economy and finance in terms which are personal and relatable to young people’s lives. Why does the economy and finance matter to me? And how do my decisions in turn affect the economy? | As the name suggests, and like our recent public communications efforts, these materials describe the economy and finance in terms which are personal and relatable to young people’s lives. Why does the economy and finance matter to me? And how do my decisions in turn affect the economy? |
| We set ourselves a target of reaching 400 state schools with econoME during the course of this year. So far since launch in April, over 1,000 schools have downloaded the materials, conceivably covering around 90,000 pupils. 52 This demonstrates the potential pent-up demand for school materials on economic and financial issues. | We set ourselves a target of reaching 400 state schools with econoME during the course of this year. So far since launch in April, over 1,000 schools have downloaded the materials, conceivably covering around 90,000 pupils. 52 This demonstrates the potential pent-up demand for school materials on economic and financial issues. |
| The Bank’s aim is to reach close to 1,500 schools by mid-2020. We are currently considering where next to take our education initiatives. A promising avenue would be a younger age range, say 7-11 year olds. This will require different materials and possibly a different approach. A more challenging market still would be adults, perhaps linked to existing initiatives to boost economic and financial literacy in the public at large. | The Bank’s aim is to reach close to 1,500 schools by mid-2020. We are currently considering where next to take our education initiatives. A promising avenue would be a younger age range, say 7-11 year olds. This will require different materials and possibly a different approach. A more challenging market still would be adults, perhaps linked to existing initiatives to boost economic and financial literacy in the public at large. |
| China is often accused of discriminating against foreign companies on its turf, in favour of local (sometime state-controlled) firms instead. | China is often accused of discriminating against foreign companies on its turf, in favour of local (sometime state-controlled) firms instead. |
| Chinese premier Li Keqiang, though, is promising to give foreign investors equal treatment. | Chinese premier Li Keqiang, though, is promising to give foreign investors equal treatment. |
| The FT’s Lucy Hornby has the details: | The FT’s Lucy Hornby has the details: |
| “Chinese and foreign companies can compete on a level playing field in this big market. That gives better vitality to the Chinese economy,” Mr Li said at the World Economic Forum, triggering prolonged applause from an audience that included high-tech manufacturers from overseas and small businesses from provincial cities. | “Chinese and foreign companies can compete on a level playing field in this big market. That gives better vitality to the Chinese economy,” Mr Li said at the World Economic Forum, triggering prolonged applause from an audience that included high-tech manufacturers from overseas and small businesses from provincial cities. |
| China, he said, would cut taxes and unlock financing for the country’s private businesses. “The pool is full of water, the challenge is to unblock the channels,” he said, adding that Beijing would not devalue the renminbi but keep its currency “at an adaptive and equilibrium level”. | China, he said, would cut taxes and unlock financing for the country’s private businesses. “The pool is full of water, the challenge is to unblock the channels,” he said, adding that Beijing would not devalue the renminbi but keep its currency “at an adaptive and equilibrium level”. |
| European stock markets have hit a two-week high in early trading. | European stock markets have hit a two-week high in early trading. |
| In London, the FTSE 100 is 17 points higher at 7317 (+0.25%). | In London, the FTSE 100 is 17 points higher at 7317 (+0.25%). |
| Mining stocks are leading the way, as traders express optimism that China and the US might cool their trade dispute. | Mining stocks are leading the way, as traders express optimism that China and the US might cool their trade dispute. |
| Connor Campbell of SpreadEx explains: | Connor Campbell of SpreadEx explains: |
| Though China announcing tariffs on $60 billion in US imports isn’t great news, it is not as bad as it could have been. The response was also tempered by the country’s deputy leader Li Keqiang urging that the ‘basic principles’ of free trade are held up, while promising that China won’t weaponise its currency (something it has already been accused of doing by Trump). | Though China announcing tariffs on $60 billion in US imports isn’t great news, it is not as bad as it could have been. The response was also tempered by the country’s deputy leader Li Keqiang urging that the ‘basic principles’ of free trade are held up, while promising that China won’t weaponise its currency (something it has already been accused of doing by Trump). |
| Premier Li’s call for a multilateral solution to the trade dispute is going down well in the markets. | Premier Li’s call for a multilateral solution to the trade dispute is going down well in the markets. |
| In Tokyo, the Nikkei index has hit its highest level in eight months. China’s Shanghai Composite jumped by 1%, amid relief that Beijing’s latest tariffs on the US are lower than feared. | In Tokyo, the Nikkei index has hit its highest level in eight months. China’s Shanghai Composite jumped by 1%, amid relief that Beijing’s latest tariffs on the US are lower than feared. |
| Investors are heartened by Li’s pledge not to launch a currency war, as Naeem Aslam of Think Markets explains: | Investors are heartened by Li’s pledge not to launch a currency war, as Naeem Aslam of Think Markets explains: |
| The Chinese yuan has been under the hammer due to two reasons; sluggish domestic growth and impending trade war. | The Chinese yuan has been under the hammer due to two reasons; sluggish domestic growth and impending trade war. |
| China has been blamed by the U.S. for devaluing its currency to gain a competitive edge. Over in Asia, we have seen that traders have felt more comfortable about China’s recent comments on currency devaluation and this has bolstered the Asian equity market. | China has been blamed by the U.S. for devaluing its currency to gain a competitive edge. Over in Asia, we have seen that traders have felt more comfortable about China’s recent comments on currency devaluation and this has bolstered the Asian equity market. |
| Importantly, premier Li has also pledged that China won’t weaponise its currency in its tussle with Donald Trump. | Importantly, premier Li has also pledged that China won’t weaponise its currency in its tussle with Donald Trump. |
| In his keynote speech in Tianjin, Li promise that Beijing hadn’t been deliberately weakening the yuan - and wouldn’t do so, either. | In his keynote speech in Tianjin, Li promise that Beijing hadn’t been deliberately weakening the yuan - and wouldn’t do so, either. |
| He said: | He said: |
| “Recent fluctuations in the renminbi exchange rate have been seen as an intentional measure, but that isn’t true,. | “Recent fluctuations in the renminbi exchange rate have been seen as an intentional measure, but that isn’t true,. |
| “One-way devaluation will do more harm than good to China’s economy. China will by no means stimulate exports by devaluing the yuan.” | “One-way devaluation will do more harm than good to China’s economy. China will by no means stimulate exports by devaluing the yuan.” |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| The threat of a global trade war looms over the financial world today, after the US and China hit each other with sweeping tariffs. | The threat of a global trade war looms over the financial world today, after the US and China hit each other with sweeping tariffs. |
| Beijing hit back at Washington yesterday, with new levies on $60bn of US goods, just hours after Donald Trump signed off tariffs on $200bn of Chinese products. This latest tit-for-tat action dragged the world economy a little closer to full-blown protectionism. | Beijing hit back at Washington yesterday, with new levies on $60bn of US goods, just hours after Donald Trump signed off tariffs on $200bn of Chinese products. This latest tit-for-tat action dragged the world economy a little closer to full-blown protectionism. |
| But...there is also optimism, as China’s retaliation is less severe than it had laid out last month. | But...there is also optimism, as China’s retaliation is less severe than it had laid out last month. |
| And over in Beijing today, China’s deputy leader has called for more support for free trade. | And over in Beijing today, China’s deputy leader has called for more support for free trade. |
| Premier Li Keqiang told a World Economic Forum conference, in the eastern city of Tianjin, that such disputes must be resolved through consultation. | Premier Li Keqiang told a World Economic Forum conference, in the eastern city of Tianjin, that such disputes must be resolved through consultation. |
| It is essential that we uphold the basic principles of multilateralism and free trade.... | It is essential that we uphold the basic principles of multilateralism and free trade.... |
| No unilateralism will offer a viable solution.” | No unilateralism will offer a viable solution.” |
| Li also warned that the world economy now stands at “a crossroads facing a choice between globalization or deglobalization.” China, he pledged, will do its bit by opening up “at a faster pace”. | Li also warned that the world economy now stands at “a crossroads facing a choice between globalization or deglobalization.” China, he pledged, will do its bit by opening up “at a faster pace”. |
| Chinese Premier Li on global trade https://t.co/vlkiKTwqRe | Chinese Premier Li on global trade https://t.co/vlkiKTwqRe |
| That will have gone down well with WEF at its “Summer Davos” in Tianjin. | That will have gone down well with WEF at its “Summer Davos” in Tianjin. |
| More cynical voices might point out that China does operate plenty of roadblocks to free trade today - second behind Russia, according to one EU report this year. | More cynical voices might point out that China does operate plenty of roadblocks to free trade today - second behind Russia, according to one EU report this year. |
| But still, Li’s words may reassure investors that the two economic powers will reach an agreement on trade policies, rather than descend deeper into a swamp of tariffs, trade barriers and bad-mouthing. | But still, Li’s words may reassure investors that the two economic powers will reach an agreement on trade policies, rather than descend deeper into a swamp of tariffs, trade barriers and bad-mouthing. |
| Asia stocks extending low quality rally. 'Markets behaving as if trade war overhang has been removed after details were released on $200bn of tariffs. Positioning stretched,' JPM says. Nikkei at 8mth high. US 10y yields steady >3% threshold. Dollar a tad lower. Bitcoin at $6.3k. pic.twitter.com/ikjbsPD0K7 | Asia stocks extending low quality rally. 'Markets behaving as if trade war overhang has been removed after details were released on $200bn of tariffs. Positioning stretched,' JPM says. Nikkei at 8mth high. US 10y yields steady >3% threshold. Dollar a tad lower. Bitcoin at $6.3k. pic.twitter.com/ikjbsPD0K7 |
| Also coming up today | Also coming up today |
| UK inflation data is out this morning. Economists predict that price rose by 2.4% year-on-year in August, down from July’s 2.5%. That would give workers a small but much-needed real wage boost. | UK inflation data is out this morning. Economists predict that price rose by 2.4% year-on-year in August, down from July’s 2.5%. That would give workers a small but much-needed real wage boost. |
| Supermarket chain Tesco is launching its new discount store format, Jack’s, to compete with the success of Lidl and Aldi. It could be a game-changer, if Tesco can get it right... | Supermarket chain Tesco is launching its new discount store format, Jack’s, to compete with the success of Lidl and Aldi. It could be a game-changer, if Tesco can get it right... |
| Will there be any Tesco branding at all? Or will it be solely these faux-farms, odd sub-brands that Tesco has been developing? We shall see pic.twitter.com/8yMl3be0ZO | Will there be any Tesco branding at all? Or will it be solely these faux-farms, odd sub-brands that Tesco has been developing? We shall see pic.twitter.com/8yMl3be0ZO |
| The biggest question re Jacks (apart from whether it will have an apostrophe, as it should) is: if it's a great, decent-quality rival to Aldi/Lidl, why would you want to go back to shopping at Tesco? Won't it highlight that Tesco ain't that cheap anymore? | The biggest question re Jacks (apart from whether it will have an apostrophe, as it should) is: if it's a great, decent-quality rival to Aldi/Lidl, why would you want to go back to shopping at Tesco? Won't it highlight that Tesco ain't that cheap anymore? |
| Plus, traders will be watching for speeches from two central bankers; European Central Bank chief Mario Draghi, and the Bank of England’s chief economist, Andy Haldane. | Plus, traders will be watching for speeches from two central bankers; European Central Bank chief Mario Draghi, and the Bank of England’s chief economist, Andy Haldane. |
| The agenda | The agenda |
| 9am BST: Bank of England Andy Haldane: Lecture at the Bank of Estonia 100th Anniversary conference, Estonia | 9am BST: Bank of England Andy Haldane: Lecture at the Bank of Estonia 100th Anniversary conference, Estonia |
| 9.30am BST: UK inflation for August | 9.30am BST: UK inflation for August |
| 9.30am BST: UK house price data for July | 9.30am BST: UK house price data for July |
| 3pm BST: ECB president Mario Draghi speech on “Making Europe’s Economic Union work”, in Berlin | 3pm BST: ECB president Mario Draghi speech on “Making Europe’s Economic Union work”, in Berlin |