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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK inflation rate hits seven-month low as Brexit effect fades - business live

Hard-pressed consumers may benefit if Britain’s inflation rate falls back towards target
Hard-pressed consumers may benefit if Britain’s inflation rate falls back towards target Photograph: Daniel Leal-Olivas/AFP/Getty Images

Afternoon summary

Time for a quick recap

Despite Facebook’s deepening problems, the US stock market is recovering from Monday’s losses.

The Dow Jones industrial average, which shed 335 points yesterday, is up 180 today.

The tech-focused Nasdaq is flattish, with software firm Adobe up 2.8% and chipmaker NVIDIA up 1.1%.

Facebook, though, is still down 3%.

Back on inflation, our economics editor Larry Elliott has warned that the Bank of England could raise interest rates in May - if wages rise over the next couple of months.

He writes:

Earnings growth has been creeping up and before too long earnings will be increasing more quickly than prices. The sharper than expected fall in inflation means the return to rising real incomes will occur sooner and that will mean stronger growth and – from the MPC’s perspective – the threat of higher wage inflation.

While there has been little in recent economic data to justify a May increase in rates, earnings data will be crucial. If the annual increase edges closer to 3%, a spring rise will be a real possibility.

No sign of a bounceback for Facebook yet:

Facebook shares fall again

Over in New York, shares in Facebook have fallen by another 3% at the start of trading.

That’s on top of yesterday’s 6.7% rout, and knocks another $15bn off its market capitalisation.

Facebook falls again

The selloff comes as the data scandal that hit the company last weekend deepens, with several new developments today:

  • A former Facebook executive has told the Guardian that numerous companies harvested the personal data of its users
  • America’s Federal Trade Commission is reportedly probing whether Facebook violated the terms of a 2011 consent decree over its use of personal data
  • A parliamentary committee has asked Facebook founder Mark Zuckerberg to answer questions

Updated

European stock markets have recovered a little ground this morning, after yesterday’s selloff.

In London the FTSE 100 has gained 22 points, having slumped to a 15-month low on Monday.

However, worries over global trade spats, the Facebook data crisis and uncertainty over the pace of US interest rate rises are all keeping traders edgy.

march20europe1
European stock markets at 1.20pm GMT today. Photograph: Thomson Reuters

Updated

Niki Lauda, center, manager of the airline ‘Laudamotion’ and former F1-driver, with crew members this morning
Niki Lauda, center, manager of the airline ‘Laudamotion’ and former F1-driver, with crew members this morning Photograph: Rolf Vennenbernd/AP

Elsewhere in the markets, legendary motor racing star-turned-airline manager Niki Lauda has landed a deal with Ryanair.

The Irish budget airline has agreed to buy a 25% stake in Laudamotion - the Vienna-based operator which was created out of Laudi’s previous airline, Niki (formerly part of Air Berlin, which went bust last year).

Ryanair intends to boost its state to 75% as soon as EU regulators have given their approval. It will lend Laudamotion six planes, which will boost its fleet to 21 -- helping it to challenge rival Lufthansa.

Rabobank: UK interest rise likely in May

The Governor of the Bank of England, Mark Carney
The Governor of the Bank of England, Mark Carney Photograph: WPA Pool/Getty Images

Jane Foley, head of foreign exchange strategy at Rabobank, believes the Bank of England’s monetary policy committee will raise interest rates at least once this year.

And despite today’s inflation figures, she believes they will hike Bank Rate from 0.5% to 0.75% in May.

“Our expectation is of no change to rates at this week’s BoE meeting] but of a rise at the May meeting. In our view, though, the market is still focusing too much on the committee’s voting patterns. It is possible for every member to hold steady this time while also planning to vote for a hike in May.

“The markets are better served by reading the Bank’s minutes closely and observing Mark Carney’s comments. It was clear at Davos, for example, that he was readying the markets for a potential rate increase during the first half of the year.

“In terms of a November hike, there remain two core issues at play. The first is Brexit. If the process runs smoothly, the environment will be much more conducive to a rate rise. Secondly, the Bank will monitor UK wage growth closely. If this increases, pushing up inflation, it will be a lot easier to justify a rate hike.

“These are significant factors, though, and so it is possible to envisage a rate rise in May but none later in the year if Brexit negotiations hit a snag and wages are flat.”

The pound has dipped slightly, following the news that Britain’s consumer prices index has dropped to a seven-month low.

Traders are calculating that the inflation slowdown makes a UK interest rate rise a little less likely in the next few months.

But sterling is only down 0.1% against the US dollar today, to just over $1.40 (this tweet from Bloomberg makes it look more dramatic though!)

The muted reaction suggests the City believes a May rate hike is still possible.

Obviously the Bank of England will be pleased to see inflation falling towards its target of 2%. But if wages do pick up, policymakers might conclude that labour market slack has been eroded, so the economy can handle higher borrowing costs.

Thursday’s meeting is an opportunity for the BoE to drop some hints...

Updated

Households won’t be popping champagne bottles open when wages finally start rising faster than inflation.

Economist Rupert Seggins has shown how workers’ earnings power has been badly eroded since the financial crisis, meaning people are poorer in real terms:

In other news, the threat of a global trade war has hit investor confidence in Germany:

House price inflation also fell last month, but is still rising faster than wages.

The average house price rose by 4.9% in the 12 months to January, down from 5% a month earlier.

UK house price data

Prices rose slowest in the North East (0.7%) and London (2.1%), but jumped fastest in the East Midlands (7.3).

UK house prices by region

Updated

It’s possible that wages will catch up with inflation this month, predicts Stephen Clarke, senior economic analyst at the Resolution Foundation.

“Import-driven inflation is clearly slowing. Food and beverage prices are rising at a slower rate than last month and further falls are likely. We can also see a slowdown in transport inflation, contributing just 0.35 ppts to annual inflation down from 0.8ppts a year ago, and the price of utilities is rising at a slower rate than before. Both are underpinned by a fall in the price of energy from its New Year highs.

“The sharp fall in inflation means we could be seeing an earlier end to the pay squeeze than previously expected, perhaps as early as this month”

We get the latest UK earnings figures tomorrow, in the unemployment data for November-January. Economists predict that wages rose by 2.6% per year in that quarter, which would almost eliminate the gap.

Treasury and TUC at odds over inflation

Mel Stride
Mel Stride Photograph: Sky News

Mel Stride, financial secretary to the Treasury, insists that the government is helping families cope with inflation.

He says:

“We know families feel the cost of living at the end of every working week.

From next month a typical taxpayer will pay 1,000 less income tax than in 2010.

“And we are increasing the National Living Wage, which is already helping the lowest earners see their pay rise by almost 7% above inflation. This is part of our plan to build an economy that works for everyone.”

Stride also suggests that real wages should start rising again soon, as inflation is expected to keep dropping:

Unions aren’t impressed, though. TUC general secretary Frances O’Grady warns that workers desperately need a proper pay rise after years of struggles:

She says:

“Britain’s living standards crisis is far from over. Today’s fall in prices may ease the pressure a bit. But working people will still be worse off at the end of this parliament than before the crash.

“The government must up its game. Millions of workers haven’t had a proper pay rise in years.

“Unless ministers invest in the infrastructure and public services needed for better-paid jobs, the UK will remain at the bottom of the league for real wage growth.”

ONS: Brexit impact is working its way though the system

It’s now 14 months since the pound hit a 31-year low against the US dollar at $1.20, driving import prices higher.

Sterling has since recovered to around $1,40. Phil Gooding, head of CPI at the Office for National Statistics, believes the impact of the pound’s slide is now fading:

“A small fall in petrol prices alongside food prices rising more slowly than last year helped pull down inflation, as many of the early 2017 price increases due to the previous depreciation of the pound have started to work through the system.

“Hotel prices also fell and the cost of ferry tickets rose more slowly than last year, when prices were collected on Valentine’s Day when many people could have been taking mini-breaks.”

Sentance: Interest rates could still rise soon

The battle against inflation isn’t over, warns Andrew Sentance, senior economic adviser at PwC.

He predicts that consumer prices could push higher this month, as retailers and transport firms prepare for Easter:

“It is not a surprise to see UK inflations tarting to fall back - from 3% in January to 2.7% in February. Forecasters were expecting price increases to ease back this year. But the rate of reduction is likely to remain slow and volatile. The fact that Easter is early this year could push inflation back up again in March.

Sentance (a former Bank of England policymaker) also argues that UK interest rates could soon rise - even though inflationary pressures are easing.

The UK recovery is now nearly nine years old, and yet our official interest rate is exactly where it was nine years ago. A further interest rate rise would be justified this Spring - which would show that the UK is following the lead of the US Federal Reserve in embarking on a policy of gradual and careful interest rate rises.”

This slowdown in inflation should bring some relief to poorer families, says Richard Lim of Retail Economics:

“Key areas driving the decline included transport and food which comprise a large chunk of expenditure, especially for the least affluent households.

“While real earnings remain in negative territory, the financial pinch will continue to ease and we expect growth to resurface by mid-2018.”

Jeremy Cook, chief economist at WorldFirst, predicts that UK pay rises could overtake inflation soon:

“Following the decision by the ONS to exclude pork pies and nightclub bottled lagers from the inflation basket, we will soon get to a point wherein the declines the pound suffered following the EU referendum go a similar way.

CPI at 2.7% is the lowest since July of last year and while wages are hardly setting the world alight, we could be within a few months of real wages turning positive for the first time since the beginning of last year.”

Inflation falls: Instant reaction

British inflation seems to be falling back from its recent peak, says Suren Thiru of the British Chambers of Commerce:

Economist Simon French of Panmure Gordon agrees that import price inflation is cooling.

The BBC’s Kamal Ahmed is optimistic that real wages will start rising soon.

More detail:

  • Petrol prices fell by 0.2 pence per litre between January and February, to 120.8 pence per litre in February.
  • Food and non-alcoholic beverages prices rose by 0.1% between January and February this year compared with a rise of 0.8% a year ago.
Inflation details

Why inflation fell last month

This drop in inflation suggests that the impact of the Brexit vote is finally fading.

Transport and food has the biggest downward impact on inflation, according to the Office for National Statistics.

It says:

  • The largest downward contributions to the change in the rate came from transport and food prices, which rose by less than a year ago.
  • Falling prices for accommodation services also had a downward effect.
  • Rising prices for footwear produced the largest, partially offsetting, upward contribution.

In recent months, import costs had been pushed by drop in sterling after the EU referendum in June 2016. That impact may now be easing.

Inflation has fallen back from its recent peak
Inflation has fallen back from its recent peak Photograph: ONS

UK inflation rate falls to 2.7%

Breaking! UK inflation has fallen to its lowest since last July.

The consumer prices index has fallen to 2.7% in February, from 3% in January, taking some pressure off hard-pressed households.

It suggests that the squeeze in earnings is coming to an end, as wages rose by 2.8% per year in December (although by 2.5% in the October-December quarter).

More to follow!

Updated

Real wages in the UK have been falling since last spring, so the end of the cost of living squeeze can’t come soon enough.

New data from Barclaycard shows that 39% of people feel poorer than a year ago, due to rising inflation. Food and fuel prices are a key factor.

Here’s some details:

  • two-thirds (67 per cent) say it is because their weekly shop seems more expensive than it used to be
  • 41 per cent say filling up the car seems more expensive than it used to
  • A fifth (21 per cent) say the cost of a night out or meal in a restaurant seems more expensive than it used to
  • One in five (20 per cent) say that the cost of travelling on public transport has gone up

Updated

Economist Sam Tombs predicts that today’s inflation data will cut the chances that the Bank of England raises interest rates this spring.

EU to lobby US over steel tariffs

Just in: Europe’s trade commissioner, Cecilia Malmström, is jetting to America to insist that the EU is excluded from the new tariffs on steel and aluminium imports.

Malmström, who has already threatened retaliatory action on American products, will meet with commerce secretary Wilbur Ross.

However, US officials have already warned that president Trump will make the final decision, with a rather broad-brush approach:

Economist Rupert Seggins is tweeting some handy charts about inflation:

The agenda: UK inflation and Facebook crisis

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Britain’s inflation is in the spotlight today, and for the first time in months we might get some good news.

Economists predict that the consumer prices index fell in February, from January’s 3% to around 2.8% last month.

If so, that would ease some of the pressure suffered by households since the pound slumped after the Brexit vote.

The data is released at 9.30am - here’s the situation last month:

Britain’s CPI inflation rate
Britain’s CPI inflation rate Photograph: ONS

A fall in inflation would offer hopes that the cost of living squeeze might be ending. Wages rose by 2.5% per year in the last quarter, and by 2.8% in December alone. If that trend continues, it’s possible that real wages might actually turn positive soon.

Weaker inflation also takes some pressure off the Bank of England to raise interest rates, so today’s report could move sterling.

Konstantinos Anthis, head of research at ADS Securities, says:

The British pound will be front and centre this morning in light of the release of the UK inflation report.

The Consumer Price Index is the number one concern for the Bank of England as the rallying inflation has forced the British central bank to grow more hawkish and signal three rate hikes over the next three years. Today’s report will be important in assessing when the first hike for this year will come.

The Bank of England will set interest rates on Thursday (we’re not expecting a hike, though).

The ONS will also release its latest UK house price data (for January).

Also coming up today....

The technology sector is reeling after Facebook was engulfed in the Cambridge Analytica data scandal.

Last night, around $36bn was wiped off Facebook’s value, knocking $5.5bn off Mark Zuckerberg’s personal wealth, as politicians demanded to know how the personal details of 50m Facebook users were harvested.

As public anger mounts, Zuckerberg has been keeping a remarkably low profile.

Parliament, though, wants answers.

Conservative MP Damian Collins, chair of the digital, culture, media and sport select committee declared:

“It’s time for Mark Zuckerberg to stop hiding behind his Facebook page.”

Jasper Lawler of CMC Markets says investors have serious concerns:

This is not the first time that Facebook have been caught being lax over their controls; both users and regulators are going to want this to be the last or at least see the firm go to extraordinary lengths to prevent incidences like this happening again. The next few weeks will be crucial as to how Facebook responds to the allegation.

With Uber suspending its driverless-car testing after one of its vehicles hit and killed a woman in Arizona, big tech is under more scrutiny than ever.

City traders will also be watching for the latest economic confidence figures from Germany, and consumer confidence across the eurozone.

And in parliament, MPs will be quizzing top officials from Office of Budget Responsibility over last week’s spring statement. including chairman Robert Chote.

The agenda:

  • 9.30am GMT: UK consumer price inflation data for February released
  • 9.30am GMT: UK house price data for January
  • 10am GMT: ZEW index of German investor confidence
  • 10am GMT: OBR officials questioned by the Treasury committee
  • 3pm GMT: Eurozone consumer confidence figures

Updated

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