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You can find the current article at its original source at https://www.theguardian.com/business/live/2019/sep/18/markets-uk-inflation-house-prices-brexit-fed-rate-decision-business-live
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| UK inflation hits lowest since December 2016, as house price slowdown continues - business live | |
| (34 minutes later) | |
| The drop in inflation last month, to a 32-month low, is welcome news for consumers, says economist Howard Archer of the EY Item Club. | |
| He points out that wage growth hit 4% in July, meaning real wages are rising, adding: | |
| Improved consumer purchasing power is particularly welcome news for an economy currently struggling markedly amid major Brexit, domestic political and global economic uncertainties – consumers have been the most resilient sector of the economy and their purchasing power will be critical to whether this resilience can continue. | |
| The bad news for households is that food and drink prices jumped last month. | |
| The ONS explains that food and drink prices rose by 0.5% in August alone, compared with July, adding: | |
| Food and non-alcoholic beverage prices rose by more between July and August 2019 than between the same two months of 2018. | |
| The effects were relatively small from all categories within this heading, with the largest upward ones coming from bread and cereals (from products such as dried potted snacks, breakfast cereal and packs of individual cakes), and meat (principally cooked ham). | |
| Mike Hardie, head of inflation at the Office for National Statistics, explains: | |
| “The inflation rate has fallen noticeably into August, to its lowest since late 2016. | |
| “This was mainly driven by a decrease in computer game prices, plus clothing prices rising by less than last year after the end of the summer sales.” | |
| The drop in inflation, from 2.1% to 1.7%, is the biggest fall since late 2014, points out Reuters. | |
| This chart shows how UK inflation was dragged down by recreation and clothing costs last month, to just 1.7%. | |
| The ONS says: | |
| Recreation and culture: the largest effect came from games, toys and hobbies (particularly computer games including downloads), with prices overall falling by 5.0% between July and August 2019 compared with a smaller fall of 0.1% between the same two months a year ago. | |
| Clothing: where prices rose by 1.8% this year compared with a larger rise of 3.1% a year ago. The main effect came from clothing, particularly children’s clothing. | |
| Newsflash: Britain’s inflation rate has fallen to its lowest level since December 2016. | |
| The consumer prices index rose by 1.7% year-on-year in August, the Office for National Statistics says. That’s down from 2.1% in July, and weaker than expected. | |
| Computer game and clothing prices helped to pull inflation down, the ONS says. | |
| More to follow! | |
| The pound is under pressure this morning, after top EU officials warned that a no-deal Brexit is a serious risk. | The pound is under pressure this morning, after top EU officials warned that a no-deal Brexit is a serious risk. |
| Outgoing European president Jean-Claude Juncker told the European Parliament there was a “palpable” risk that Britain crashes out of the European Union without a deal. | Outgoing European president Jean-Claude Juncker told the European Parliament there was a “palpable” risk that Britain crashes out of the European Union without a deal. |
| The EU’s top negotiator, Michel Barnier, also warned not to underestimate the consequences of no-deal. | The EU’s top negotiator, Michel Barnier, also warned not to underestimate the consequences of no-deal. |
| He told MEPs that key issues such as the divorce payment, the Irish border, and citizens rights wouldn’t suddenly vanish. | He told MEPs that key issues such as the divorce payment, the Irish border, and citizens rights wouldn’t suddenly vanish. |
| “I advise everyone not to underestimate the consequences, clearly for the United Kingdom first of all but also for us, of the absence of a deal.” | “I advise everyone not to underestimate the consequences, clearly for the United Kingdom first of all but also for us, of the absence of a deal.” |
| “If the United Kingdom leaves without a deal, I want to remind you that all these questions will not just disappear. | “If the United Kingdom leaves without a deal, I want to remind you that all these questions will not just disappear. |
| He also took a swipe at London for not providing concrete proposals to break the deadlock, saying: | He also took a swipe at London for not providing concrete proposals to break the deadlock, saying: |
| Some three years after the Brexit referendum we should not be pretending to negotiate.” | Some three years after the Brexit referendum we should not be pretending to negotiate.” |
| This knocked the pound down by a third of a cent, to $1.246. | This knocked the pound down by a third of a cent, to $1.246. |
| "The risk of a no deal [#Brexit] remains real," warns @JunckerEU at the European Parliament, though he believes it's still possible to avoid. However, Juncker says until @BorisJohnson offers feasible alternatives to the Irish backstop (as requested), there's "no real progress." pic.twitter.com/8O0NwBagPL | "The risk of a no deal [#Brexit] remains real," warns @JunckerEU at the European Parliament, though he believes it's still possible to avoid. However, Juncker says until @BorisJohnson offers feasible alternatives to the Irish backstop (as requested), there's "no real progress." pic.twitter.com/8O0NwBagPL |
| The pound, following Juncker’s “palpable” comment pic.twitter.com/G3raFS9kBp | The pound, following Juncker’s “palpable” comment pic.twitter.com/G3raFS9kBp |
| Attention oil traders: The US secretary of state is heading to Saudi Arabia, as America plans its response to last week’s oil attacks. | Attention oil traders: The US secretary of state is heading to Saudi Arabia, as America plans its response to last week’s oil attacks. |
| Mike Pompeo is due to meet Saudi crown prince Mohammed bin Salman today, followed by Abu Dhabi’s Sheikh Mohammed bin Zayed Al Nahyan on Thursday. | Mike Pompeo is due to meet Saudi crown prince Mohammed bin Salman today, followed by Abu Dhabi’s Sheikh Mohammed bin Zayed Al Nahyan on Thursday. |
| Both countries are US allies in the Saudi-led coalition in Yemen (where war and humanitarian disaster have been raging for several years). | Both countries are US allies in the Saudi-led coalition in Yemen (where war and humanitarian disaster have been raging for several years). |
| In another development, Saudi Arabia says it has joined a US-led coalition to secure the Mideast’s waterways, after the seizure of several oil tankers. | In another development, Saudi Arabia says it has joined a US-led coalition to secure the Mideast’s waterways, after the seizure of several oil tankers. |
| After two very volatile days, oil is currently calm as a mill pond -- with Brent crude down $0.01 at $64.54 (having hit almost $72 on Monday). | After two very volatile days, oil is currently calm as a mill pond -- with Brent crude down $0.01 at $64.54 (having hit almost $72 on Monday). |
| The UK government is often criticised for taking laissez faire approach to takeovers. | The UK government is often criticised for taking laissez faire approach to takeovers. |
| But not today. In a rare move, business secretary Andrea Leadsom has intervened in the £4bn takeover of UK defence and aerospace firm Cobham. | But not today. In a rare move, business secretary Andrea Leadsom has intervened in the £4bn takeover of UK defence and aerospace firm Cobham. |
| Leadsom fears the deal, by a US private equity firm, could endanger national security. More here: | Leadsom fears the deal, by a US private equity firm, could endanger national security. More here: |
| Leadsom intervenes in takeover of defence supplier Cobham | Leadsom intervenes in takeover of defence supplier Cobham |
| The US repo market is effectively an obscure part of the financial system’s plumbing....which started making alarming clanking noises yesterday. | The US repo market is effectively an obscure part of the financial system’s plumbing....which started making alarming clanking noises yesterday. |
| Reuters has written a handy explanation to this overnight lending market between banks: | Reuters has written a handy explanation to this overnight lending market between banks: |
| The system typically hums along with the interest rate charged on repo deals hovering close to the Fed’s benchmark overnight rate, currently set in a range of 2.00% to 2.25%. That rate is expected to be cut by a quarter percentage point on Wednesday. | The system typically hums along with the interest rate charged on repo deals hovering close to the Fed’s benchmark overnight rate, currently set in a range of 2.00% to 2.25%. That rate is expected to be cut by a quarter percentage point on Wednesday. |
| But sometimes, investors get fearful of lending, as seen during the global credit crisis, or at other times there are just not enough reserves or cash in the system to lend out, as appeared to be the case this week. And that can cause a squeeze on the market and send borrowing costs zooming higher. | But sometimes, investors get fearful of lending, as seen during the global credit crisis, or at other times there are just not enough reserves or cash in the system to lend out, as appeared to be the case this week. And that can cause a squeeze on the market and send borrowing costs zooming higher. |
| But when investors get fearful of lending, as seen during the global credit crisis, or when there are just not enough reserves or cash in the system to lend out, it sends the repo rate soaring above the Fed Funds rate [to 10% yesterday]. | But when investors get fearful of lending, as seen during the global credit crisis, or when there are just not enough reserves or cash in the system to lend out, it sends the repo rate soaring above the Fed Funds rate [to 10% yesterday]. |
| Everything you need to know about the repo market but were too afraid/couldn’t be bothered to ask...https://t.co/ejjnfgtusn | Everything you need to know about the repo market but were too afraid/couldn’t be bothered to ask...https://t.co/ejjnfgtusn |
| It’s never good to see banks short of cash. | It’s never good to see banks short of cash. |
| But yesterday, the cost of overnight borrowing spiked alarmingly, in a sign that financial institutions were struggling to get their hands on dollars. | But yesterday, the cost of overnight borrowing spiked alarmingly, in a sign that financial institutions were struggling to get their hands on dollars. |
| This overnight ‘repo rate’ briefly hit 10% -- an extremely worrying sign -- before falling back after the Federal Reserve raced to inject more money into the system. | This overnight ‘repo rate’ briefly hit 10% -- an extremely worrying sign -- before falling back after the Federal Reserve raced to inject more money into the system. |
| US overnight repo rate jumps to 10%, highest in years. pic.twitter.com/axRT1hRLGq | US overnight repo rate jumps to 10%, highest in years. pic.twitter.com/axRT1hRLGq |
| The FT explains: | The FT explains: |
| Repos are vital to the financial system because they give companies access to cash overnight using US Treasuries as collateral. | Repos are vital to the financial system because they give companies access to cash overnight using US Treasuries as collateral. |
| Ashish Shah, co-chief investment officer for fixed income at Goldman Sachs Asset Management, described the abrupt tightening of the US money market as a “big deal”. | Ashish Shah, co-chief investment officer for fixed income at Goldman Sachs Asset Management, described the abrupt tightening of the US money market as a “big deal”. |
| Similar spikes were during the financial crisis in 2008, when investors panicked that some banks could be in serious financial trouble (as many were!). | Similar spikes were during the financial crisis in 2008, when investors panicked that some banks could be in serious financial trouble (as many were!). |
| Yesterday’s move seems to be due to a temporary lack of dollars, as banks settle tax bills or pay for recent bond purchases. | Yesterday’s move seems to be due to a temporary lack of dollars, as banks settle tax bills or pay for recent bond purchases. |
| But still, it’s not a great sign, so the Fed could announce further measure to support liquidity later today. | But still, it’s not a great sign, so the Fed could announce further measure to support liquidity later today. |
| Dramatic moves in the money mkt that led to US Central bank shunting $53bn into the system on Tue show that the unexpected can still occur, even in an era of tight bank regulation & relative fin stability. It looked like banks were suddenly short of cash. https://t.co/Dcnof1GlgJ pic.twitter.com/6noMgEgAlZ | Dramatic moves in the money mkt that led to US Central bank shunting $53bn into the system on Tue show that the unexpected can still occur, even in an era of tight bank regulation & relative fin stability. It looked like banks were suddenly short of cash. https://t.co/Dcnof1GlgJ pic.twitter.com/6noMgEgAlZ |
| 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. |
| Two issues dominate the City today – August’s UK inflation data, and a likely US interest rate cut. | Two issues dominate the City today – August’s UK inflation data, and a likely US interest rate cut. |
| Following a heavy barrage of criticism from president Trump, the Federal Reserve seems certain to cut interest rates at the end of its policy meeting today. This would be the second rate cut in under two month. | Following a heavy barrage of criticism from president Trump, the Federal Reserve seems certain to cut interest rates at the end of its policy meeting today. This would be the second rate cut in under two month. |
| The Fed will probably lower borrowing costs by a quarter-point, from 2% to 1.75%. It could cite the global slowdown, the impact of the trade war with China, Brexit, and even the latest geopolitical uncertainty in the Middle East. | The Fed will probably lower borrowing costs by a quarter-point, from 2% to 1.75%. It could cite the global slowdown, the impact of the trade war with China, Brexit, and even the latest geopolitical uncertainty in the Middle East. |
| But it’s a difficult decision. Some US economic data has weakened recently – the factory PMI went into contraction last month for the first time in a decade. | But it’s a difficult decision. Some US economic data has weakened recently – the factory PMI went into contraction last month for the first time in a decade. |
| But other indicators, such as retail sales, look strong -- so the Fed may dampen expectations of further rate cuts soon. | But other indicators, such as retail sales, look strong -- so the Fed may dampen expectations of further rate cuts soon. |
| Trump has already savaged the Fed – calling them “boneheads” for not lowering interest rates faster. On Monday he claimed that America’s top central bankers “don’t have a clue” – which I’m sure went down well at the Fed.... | Trump has already savaged the Fed – calling them “boneheads” for not lowering interest rates faster. On Monday he claimed that America’s top central bankers “don’t have a clue” – which I’m sure went down well at the Fed.... |
| ...The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries. They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus! | ...The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries. They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus! |
| Before the Fed fireworks, we find out how the cost of living changed in Britain last month. | Before the Fed fireworks, we find out how the cost of living changed in Britain last month. |
| Economists predict that Britain’s inflation rate probably dropped below the government’s 2% target in August, bringing some relief to households. That would mean real wages are still growing. | Economists predict that Britain’s inflation rate probably dropped below the government’s 2% target in August, bringing some relief to households. That would mean real wages are still growing. |
| However, the recent slump in the pound to a three-year low is likely to push inflation higher in the coming months. | However, the recent slump in the pound to a three-year low is likely to push inflation higher in the coming months. |
| The Office for National Statistics will also release new UK house price data, which is likely to confirm that fears of a no-deal Brexit are hitting the economy. | The Office for National Statistics will also release new UK house price data, which is likely to confirm that fears of a no-deal Brexit are hitting the economy. |
| It’s possible that house price inflation has hit a new seven year low. Last month, we learned that prices were rising at the weakest rate since 2012, with prices falling in London, the South East and the South West. | It’s possible that house price inflation has hit a new seven year low. Last month, we learned that prices were rising at the weakest rate since 2012, with prices falling in London, the South East and the South West. |
| Investors will also be eyeing events in the Gulf. The markets are calmer, after Saudi Arabia said yesterday that its oil supplies would be fully restored by the end of September. | Investors will also be eyeing events in the Gulf. The markets are calmer, after Saudi Arabia said yesterday that its oil supplies would be fully restored by the end of September. |
| Brent crude has fallen back to $64.50, so still some way above the $60/barrel levels last week, before the weekend attack on its production facilities. Any sign of military action against Iran could surely push prices higher again. | Brent crude has fallen back to $64.50, so still some way above the $60/barrel levels last week, before the weekend attack on its production facilities. Any sign of military action against Iran could surely push prices higher again. |
| The agenda | The agenda |
| 9.30am BST: UK inflation data for August. CPI expected to drop to +1.9%, from +2.1% | 9.30am BST: UK inflation data for August. CPI expected to drop to +1.9%, from +2.1% |
| 9.30am BST: UK house prices for July. Annual price rises expected to fall to +0.6%, from 0.9% | 9.30am BST: UK house prices for July. Annual price rises expected to fall to +0.6%, from 0.9% |
| 3.30pm BST: US weekly oil inventories | 3.30pm BST: US weekly oil inventories |
| 7pm BST: US Federal Reserve interest rate decision | 7pm BST: US Federal Reserve interest rate decision |
| 7.30pm BST: Fed chair Jerome Powell’s press conference | 7.30pm BST: Fed chair Jerome Powell’s press conference |