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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% – as it happened
(35 minutes later)
Time for a recap:
British workers are facing a renewed wage squeeze after inflation jumped unexpectedly to a six-month high.
The Consumer Prices Index rose by 2.7% year-on-year in August, up from 2.5% in July. The City had expected a drop to 2.4%.
Higher clothing prices, transport bills and recreation costs all combined to push the cost of living up at a faster pace.
It means inflation is now rising faster than total pay again, meaning the spectre of a cost of living squeeze still looms over the UK economy.
TUC General Secretary Frances O’Grady has called on ministers to do more, including boosting pay for the poorest:
“The pay squeeze is tightening again, but the government is doing nothing to get wages rising faster.
“The minimum wage should be put up to £10 an hour as quickly as possible. And we need a National Investment Bank to target communities that are most in need of new industry and better jobs.
“Unions are fighting hard to get workers better pay, but we need new rights to enter workplaces and negotiate with employers for fair pay rises.”
Economists called the news a ‘body-blow’ for families, warning that inflation could continue to spike if Brexit uncertainty weakens the pound.
Thomas Wells, manager of the Smith & Williamson Global Inflation-Linked Bond Fund, says:
“This was a nasty inflation shock and, as we have said before, shows that a gentle glide back to the 2% target cannot be taken for granted.
“Looking at the components of RPI (up 3.5%), which is the underlying index for linkers, it appears that housing, leisure and travel costs have driven the stronger than expected inflation print. Indeed, the motorist continues to be clobbered by high petrol prices, which are up nearly 12% year-on-year. We would not read too much into the uptick in clothing and footwear, as this is a volatile component, and the trend here is not far from the four-month average.
“The medium-term outlook for inflation remains unclear due to Brexit risks and potential supply disruptions. Moreover, ‘shrinkflation’ has been very much in evidence in Europe, for example, the size of fries in Belgium has contracted due to the very poor potato crop owing to the very dry weather over the summer. The UK will not be immune from similar pressures.
In other news:
China has appealed for free trade and multilateralism to be protected, after Donald Trump triggered another round of tariffs between the two economic powerhouses.
Premier Xi also promised that China would not launch a currency war by weakening the yuan, saying:
“One-way devaluation will do more harm than good to China’s economy. China will by no means stimulate exports by devaluing the yuan.”
Stock markets are mostly higher, on optimism that the trade dispute can be resolved. Japan’s Nikkei hit an eight-month high, while Britain’s FTSE 100 index is up 42 points at 0.6%.
The CEO of Danske Bank has resigned over a huge money-laundering scandal.
UK supermarket chain Tesco has launched its new discount chain, Jack’s, in an attempt to push back against budget groups Aldi and Lidl.
Exactly ten years ago, Wall Street was suffering a dramatic plunge.
Major bank share were slumping through the floor as the aftermath of the Lehman Brothers collapse ripped through the markets.
It’s a gentler picture today. The Dow Jones industrial average has gained 107 points in early trading, or 0.4%, to 26,354.
Investors in New York are taking yesterday’s tit-for-tat tariffs between the US and China in their stride, hoping that negotiations might deliver a breakthrough.
But if you want to relive events a decade ago, here you are....
Brutal opening on Wall Street: Dow Jones drops 2% within mińutes of opening. Banks leading, but GE (-6%), US Airways (-7.4%) hit as finance infects economy.
CNBC is running Morgan Stanley and Goldman's stock prices at the top of the screen, called the "death watch". MS down 27%, Goldman down 20%.
NY Fed President Geithner takes a call from Lloyd Blankfein, CEO of Goldman Sachs. Blankfein says he's doing fine, but his voice is quavering. Geithner calls back afterwards, tells Blankfein not to speak to anyone. "If anyone hears your voice, you'll scare the shit out of them."
Far be it from me to point the finger when it comes to spelling mistakes, but this is quite impressive:Far be it from me to point the finger when it comes to spelling mistakes, but this is quite impressive:
Oops this special livery won’t last long! She’s going back to the shop!(Source: HKADB) pic.twitter.com/20SRQpKXETOops this special livery won’t last long! She’s going back to the shop!(Source: HKADB) pic.twitter.com/20SRQpKXET
In other news, the CEO of Denmark’s Danske Bank quit today over a massive money-laundering scandal.In other news, the CEO of Denmark’s Danske Bank quit today over a massive money-laundering scandal.
Thomas Borgen quit as Danske reported that some €200bn in questionable money flowed through its Estonian branch, a jaw-dropping amount.Thomas Borgen quit as Danske reported that some €200bn in questionable money flowed through its Estonian branch, a jaw-dropping amount.
Danske’s small but highly profitable Estonian operation had 15,000 non-resident clients, including people based in the UK, Russia and the British Virgin Islands.Danske’s small but highly profitable Estonian operation had 15,000 non-resident clients, including people based in the UK, Russia and the British Virgin Islands.
Analysis of 6,200 of the riskiest customers showed that the “vast majority have been found to be suspicious”.Analysis of 6,200 of the riskiest customers showed that the “vast majority have been found to be suspicious”.
Borgen said he was stepping down because Danske had “failed to live up to its responsibility”Borgen said he was stepping down because Danske had “failed to live up to its responsibility”
Anti-corruption campaigner Bill Browder, a critic of the Russian government, says managers, regulators and the police all dropped the ball:Anti-corruption campaigner Bill Browder, a critic of the Russian government, says managers, regulators and the police all dropped the ball:
BREAKING: Explosive report on money laundering at Danske Bank. Damning conclusions for management, regulators and police in Denmark, Estonia and the EU who all did nothing for 8 years while hundreds of billions flowed through. Here is the link. https://t.co/U3oHCcOw6GBREAKING: Explosive report on money laundering at Danske Bank. Damning conclusions for management, regulators and police in Denmark, Estonia and the EU who all did nothing for 8 years while hundreds of billions flowed through. Here is the link. https://t.co/U3oHCcOw6G
BREAKING: The suspicious transaction situation was so bad at Danske Bank’s Estonian branch that it’s US correspondent bank terminated the relationship on anti money laundering grounds. Yet the Danish management did nothing until 2015 pic.twitter.com/EkY5QR4EfsBREAKING: The suspicious transaction situation was so bad at Danske Bank’s Estonian branch that it’s US correspondent bank terminated the relationship on anti money laundering grounds. Yet the Danish management did nothing until 2015 pic.twitter.com/EkY5QR4Efs
BREAKING: From Danske Bank money laundering report, $200 billion representing 9.5 million transactions moved trough the Estonian branche’s ‘non resident’ portfolio pic.twitter.com/hAxVCg8ZZ3BREAKING: From Danske Bank money laundering report, $200 billion representing 9.5 million transactions moved trough the Estonian branche’s ‘non resident’ portfolio pic.twitter.com/hAxVCg8ZZ3
NIESR, the economic think tank, report that inflationary pressures were strongest in London last month, and weakest in Yorkshire.NIESR, the economic think tank, report that inflationary pressures were strongest in London last month, and weakest in Yorkshire.
It says:It says:
At the regional level, underlying inflation was highest in London at 1.4 per cent and lowest in Yorkshire and the Humber at 0.5 per cent in the year to August 2018At the regional level, underlying inflation was highest in London at 1.4 per cent and lowest in Yorkshire and the Humber at 0.5 per cent in the year to August 2018
#CPI #inflation rose by 0.2% to 2.7% in the year to August 2018 - Our new #analysis suggest that this increase was driven by relatively large increases in a small number of #items - Read here in full: https://t.co/FaX2PJvmRi#CPI #inflation rose by 0.2% to 2.7% in the year to August 2018 - Our new #analysis suggest that this increase was driven by relatively large increases in a small number of #items - Read here in full: https://t.co/FaX2PJvmRi
Ouch! The pound has just shed all its earlier gains and slumped into the red.Ouch! The pound has just shed all its earlier gains and slumped into the red.
Sterling has dropped back to $1.312, from the eight-week high of $1.32 after this morning’s inflation shock.Sterling has dropped back to $1.312, from the eight-week high of $1.32 after this morning’s inflation shock.
Why? Because Brexit negotiations have apparently hit another roadblock. According to The Times, the UK has decided to reject Europe’s latest offer to fix the Irish Border puzzle.Why? Because Brexit negotiations have apparently hit another roadblock. According to The Times, the UK has decided to reject Europe’s latest offer to fix the Irish Border puzzle.
12pm TimesMay rejects Barnier improved Irish brexit offerhttps://t.co/C3ZpFgXUml12pm TimesMay rejects Barnier improved Irish brexit offerhttps://t.co/C3ZpFgXUml
The Times says:The Times says:
Theresa May will today reject Michel Barnier’s “improved” offer to solve the Irish border issue, warning that it still violates Britain’s red lines.Theresa May will today reject Michel Barnier’s “improved” offer to solve the Irish border issue, warning that it still violates Britain’s red lines.
The EU’s chief negotiator said yesterday that the EU was preparing to table a new “backstop” proposal that he hoped the government would be able to support.The EU’s chief negotiator said yesterday that the EU was preparing to table a new “backstop” proposal that he hoped the government would be able to support.
He said the new plan would not involve customs checks in the Irish Sea and would respect the “territorial integrity of the UK”.He said the new plan would not involve customs checks in the Irish Sea and would respect the “territorial integrity of the UK”.
But a senior government source said that Mr Barnier had still not dropped his insistence that Northern Ireland be treated as a separate customs jurisdiction from the rest of the United Kingdom.....But a senior government source said that Mr Barnier had still not dropped his insistence that Northern Ireland be treated as a separate customs jurisdiction from the rest of the United Kingdom.....
MAY IS SAID TO REJECT BARNIER IMPROVED IRISH BREXIT OFFER:TIMES pic.twitter.com/NnWwB7eKABMAY IS SAID TO REJECT BARNIER IMPROVED IRISH BREXIT OFFER:TIMES pic.twitter.com/NnWwB7eKAB
Theresa May will meet with EU leaders in Salzburg later today for an informal summit, so we could hear more on Brexit soon. She’s also ruled out another referendum (again)...Theresa May will meet with EU leaders in Salzburg later today for an informal summit, so we could hear more on Brexit soon. She’s also ruled out another referendum (again)...
Back on UK inflation...and Capital Economics reckon the cost of living squeeze might ease by next summer:Back on UK inflation...and Capital Economics reckon the cost of living squeeze might ease by next summer:
Defying expectations for a fall, CPI inflation jumped to 2.7% August, from 2.5% in July. However, spikes in the volatile theatre, airfare and clothing components should be temporary. We still expect inflation to gradually ease and reach the BoE's 2% target by this time next year. pic.twitter.com/qFcy6LzZXRDefying expectations for a fall, CPI inflation jumped to 2.7% August, from 2.5% in July. However, spikes in the volatile theatre, airfare and clothing components should be temporary. We still expect inflation to gradually ease and reach the BoE's 2% target by this time next year. pic.twitter.com/qFcy6LzZXR
That all depends on how Brexit plays out, I suggest, as a disorderly end to negotiations would surely weaken the pound and drive up import costs.That all depends on how Brexit plays out, I suggest, as a disorderly end to negotiations would surely weaken the pound and drive up import costs.
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.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.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: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.“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.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.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/mpAfQdHBvQIt’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.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/JYLBYmMoFGNot 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/9QEPrWyRQaTransport 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/6CBvFyOo7IUK 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.”