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| Real wage squeeze deepens as UK inflation hits six-month high of 2.7% – business live | Real wage squeeze deepens as UK inflation hits six-month high of 2.7% – business live |
| (35 minutes later) | |
| In other retail news, shares in DIY chain Kingfisher have slumped by 4% to the bottom of the FTSE 100 leaderboard after posting its latest financial results. | |
| Kingfisher, which runs B&Q, reported an 18% slump in adjusted pre-tax profits in the six months to 31 July. | |
| CEO Véronique Laury, Chief Executive Officer, blamed difficulties in France for holding back her transformation plan: | |
| “Transformation on this scale is tough, and there are challenges that we’re working through. There is still much to do to improve our performance in France and to remove inefficiencies within the business as we continue to transform at pace. | |
| I am confident that we have the right plan and the opportunity for Kingfisher is significant. | |
| Kingfisher’s French profits plunged by almost 30%, taking the shine off a 1.3% rise in UK profits. | |
| Callum Stayton, retail sector specialist at management consultancy Vendigital, reckons Tesco could make a success of its new discount arm: | Callum Stayton, retail sector specialist at management consultancy Vendigital, reckons Tesco could make a success of its new discount arm: |
| “The timing is right for Jack’s as market share at the discount end of the market is still growing at a rate of 10 percent per year, so there is still a lot to play for. Set up costs will also be quite low as Tesco plans to scoop up sites that have been vacant for a long time or redevelop some of its less-successful Metro stores. | “The timing is right for Jack’s as market share at the discount end of the market is still growing at a rate of 10 percent per year, so there is still a lot to play for. Set up costs will also be quite low as Tesco plans to scoop up sites that have been vacant for a long time or redevelop some of its less-successful Metro stores. |
| “Following its takeover of Booker, Tesco has first-hand experience of sourcing and supplying large volumes of goods and this will stand it in good stead when rolling out Jack’s, which is expected to stock higher volumes of fewer goods than its mainstream stores.” | “Following its takeover of Booker, Tesco has first-hand experience of sourcing and supplying large volumes of goods and this will stand it in good stead when rolling out Jack’s, which is expected to stock higher volumes of fewer goods than its mainstream stores.” |
| With inflation rearing up, more UK consumers might be interested in Tesco’s new discount supermarket chain. | With inflation rearing up, more UK consumers might be interested in Tesco’s new discount supermarket chain. |
| Tesco has been unveiling “Jack’s” to a group of journalists in Chatteris this morning. | Tesco has been unveiling “Jack’s” to a group of journalists in Chatteris this morning. |
| It’s aimed firmly at German discounters Aldi and Lidl, with fewer items than a traditional Tesco’s and a firm focus on British products. | It’s aimed firmly at German discounters Aldi and Lidl, with fewer items than a traditional Tesco’s and a firm focus on British products. |
| It’s (union) Jack’s... pic.twitter.com/mpAfQdHBvQ | It’s (union) Jack’s... pic.twitter.com/mpAfQdHBvQ |
| My colleague Sarah Butler explains: | My colleague Sarah Butler explains: |
| The first store has been unveiled by the Tesco chief executive, Dave Lewis, in the small Cambridgeshire town of Chatteris. The public will get their first chance to shop at Jack’s on Thursday morning when the store opens, along with a second outlet in Immingham, Lincolnshire. | The first store has been unveiled by the Tesco chief executive, Dave Lewis, in the small Cambridgeshire town of Chatteris. The public will get their first chance to shop at Jack’s on Thursday morning when the store opens, along with a second outlet in Immingham, Lincolnshire. |
| The new chain is named after Jack Cohen, who founded Tesco 99 years ago, earning the nickname “Slasher Jack” for his “pile-it-high, sell-it-cheap” approach to retailing. | The new chain is named after Jack Cohen, who founded Tesco 99 years ago, earning the nickname “Slasher Jack” for his “pile-it-high, sell-it-cheap” approach to retailing. |
| Lewis said the group planned to open 10 to 15 Jack’s stores over the next six months, about half of which will be converted Tesco outlets while others will be next to existing Tesco stores and some on new sites. | Lewis said the group planned to open 10 to 15 Jack’s stores over the next six months, about half of which will be converted Tesco outlets while others will be next to existing Tesco stores and some on new sites. |
| Some price are certainly cheap; bread, for example, is on the shelf at 45p per loaf. Chicken is on offer at £1.60 / kg (corrected), compared to £2.75 / kg for a Waitrose Essential bird. | |
| Other prices look less sensational, as Tesco’s beancounters try to pitch their new offering correctly: | Other prices look less sensational, as Tesco’s beancounters try to pitch their new offering correctly: |
| Not convinced Jack’s is much cheaper than @Tesco. £2 Cornflakes = same; £3.35 beef mince vs £3.40 at Tesco; milk £1.09 = same pic.twitter.com/JYLBYmMoFG | Not convinced Jack’s is much cheaper than @Tesco. £2 Cornflakes = same; £3.35 beef mince vs £3.40 at Tesco; milk £1.09 = same pic.twitter.com/JYLBYmMoFG |
| Jack's own label baked beans 420g 29p compared to Tesco own label 32p but hang on at Sainsbury's you can get Basics beans for.. 25p.. only 400g though.. | Jack's own label baked beans 420g 29p compared to Tesco own label 32p but hang on at Sainsbury's you can get Basics beans for.. 25p.. only 400g though.. |
| Jack’s also makes it easier to hand over your hard-earned cash, with a mobile app as an alternative to its traditional checkouts and self-service tills. | Jack’s also makes it easier to hand over your hard-earned cash, with a mobile app as an alternative to its traditional checkouts and self-service tills. |
| Here’s our full story: | Here’s our full story: |
| Three factors drove UK inflation higher last month. | Three factors drove UK inflation higher last month. |
| In Transport, the cost of travelling by air or sea rose in August. Petrol prices rose by 1.4p per litre, while diesel rose by 1.2p per litre. | In Transport, the cost of travelling by air or sea rose in August. Petrol prices rose by 1.4p per litre, while diesel rose by 1.2p per litre. |
| Clothing and footwear also become more expensive, with prices rising by 3.1% between July and August. Women’s and children’s clothing rose particularly sharply, the ONS says. | Clothing and footwear also become more expensive, with prices rising by 3.1% between July and August. Women’s and children’s clothing rose particularly sharply, the ONS says. |
| Recreation and culture costs rose by 0.6% between July and August. The ONS blamed “pricier theatre tickets” (although it’s hard to believe this had a huge impact on the nation’s wallets) and another rise in computer game prices. | Recreation and culture costs rose by 0.6% between July and August. The ONS blamed “pricier theatre tickets” (although it’s hard to believe this had a huge impact on the nation’s wallets) and another rise in computer game prices. |
| Suren Thiru, head of economics at the British Chambers of Commerce (BCC), also fears that a no-deal Brexit could shove inflation higher. | Suren Thiru, head of economics at the British Chambers of Commerce (BCC), also fears that a no-deal Brexit could shove inflation higher. |
| “Inflation surprisingly rose for the second successive month in August, largely wiping out the recent recovery in real wage growth and emphasising the continued squeeze on consumers. | “Inflation surprisingly rose for the second successive month in August, largely wiping out the recent recovery in real wage growth and emphasising the continued squeeze on consumers. |
| “The strong growth in producer prices indicates that inflationary pressures further down the supply chain remain significant and could lift inflation higher in the coming months. However, the upward pressure on prices remains transitory, and inflation should resume its ease back towards target once the impact of the recent increase in oil prices drops out of the calculation. | “The strong growth in producer prices indicates that inflationary pressures further down the supply chain remain significant and could lift inflation higher in the coming months. However, the upward pressure on prices remains transitory, and inflation should resume its ease back towards target once the impact of the recent increase in oil prices drops out of the calculation. |
| “The possibility of a disorderly Brexit is the key risk to the UK’s outlook for inflation as it could result in a substantial decline in sterling, which could significantly increase inflation and exacerbate the financial squeeze on consumers and businesses. | “The possibility of a disorderly Brexit is the key risk to the UK’s outlook for inflation as it could result in a substantial decline in sterling, which could significantly increase inflation and exacerbate the financial squeeze on consumers and businesses. |
| More bad news for households: inflation could keep rising in the months ahead, especially if Brexit talks flounder (weakening the pound). | 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. | If so, that could mean inflation keeps rising faster than total pay. |
| Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International, explains: | 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. | “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. | “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. | “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: | 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. | 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 | 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. | 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 | 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. | 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. | 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. | 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. | 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.” |