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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (until 2.45) and Nick Fletcher

UK inflation stays at 0.6%, but import prices rise sharply -as it happened

Transport costs pushed up the cost of living last month
Transport costs pushed up the cost of living last month Photograph: Toby Melville/Reuters

European markets end lower

A fall in the oil price after a report from the International Energy Agency forecast a continuing supply glut, plus renewed concerns about a US rate rise next week, sent shares lower once more after a brief attempt at revival. Joshua Mahony, market analyst at IG, said:

Both European and US markets have turned lower once more this afternoon, as the relief brought by predictably dovish comments from Fed member Brainard soon evaporated. Coming out of the summer lull, it seems volatility is back with a bang, leaving many struggling to get a handle on where exactly it has come from. Despite a perceived hawkish shift from some Fed rate setters, driving a flight out of stocks and into the dollar, September still seems too early for the next US rate increase and it is still a coin toss whether one will happen in 2016.

Crude prices have suffered after yet another downbeat assessment of the sector, this time from the IEA which cut its demand forecasts for the year ahead. Even if OPEC and Russia manage to reach a supply freeze deal, output would still be maintained at near record highs while demand falters. There is little surprise that we are seeing the bears come back into play to take advantage of the misguided ramp up in price recently.

Brent crude is currently down more than 2% at $47.25 a barrel, while West Texas Intermediate has fallen 2.6% to $45.07.

On the European markets, the final scores showed:

  • The FTSE 100 fell 35.27 points or 0.53% to 6665.63
  • Germany’s Dax dropped 0.43% to 10,386.60
  • France’s Cac closed 1.19% lower at 4387.18
  • Italy’s FTSE MIB finished 1.74% down at 16,547.75
  • Spain’s Ibex ended down 1.61% at 8724.2
  • In Greece, the Athens market dipped 0.05% at 556.96

On Wall Street the Dow Jones Industrial Average is down 249 points or 1.36%.

On that note it’s time to close for the evening. Thanks for your comments, and we’ll be back tomorrow.

The bounce that followed comments last night from Federal Reserve governor Lael Brainard suggesting that US interest rate rises should be kept in check has faded. Instead investors have revisited concerns that next week’s Fed meeting could after all see an increase in borrowing costs.

Meanwhile a fall in crude oil prices after the International Energy Agency warned of a glut until the middle of next year has also soured sentiment. So Wall Street is sharply lower, with the Dow Jones Industrial Average down 240 points or 1.35 and sending European markets to their lowest levels of the day.

There are exceptions however (or one at least):

Apple is benefitting from some positive comments about the recently revealed iPhone 7, with good initial sales figures.

Updated

The pound continues to decline, after UK inflation came in below expectations and made any move by the Bank of England to raise rates a more distant prospect. The Bank meets this week to decide its next move, but economists believe it is very unlikely there will be any change in its stance.

Sterling has dropped more than 1% on the day to $1.3171, while against the euro it is down 1.23% at €1.1720.

Here’s our story about Sports Direct and MPs concerns about its ties with employment agency Transline. Sarah Butler writes:

MPs have called on Sports Direct to end its relationship with Transline, which supplies workers for the retailer’s Shirebrook warehouse, over fears that the employment agency misled a parliamentary inquiry.

Iain Wright, Labour MP and chair of the Commons business, innovation and skills (BIS) select committee, which published a damning report on Sports Direct in July, has written to the retailer’s founder and majority shareholder Mike Ashley saying he believed Transline was not candid about the reasons for its lack of an operating licence from the industry watchdog.

The BIS committee has also warned Transline that it is considering reporting to the Commons that the company’s directors are not fit to run the company because of concerns about its dealings with Gangmasters Licensing Authority (GLA).

“We ask you to think seriously about continuing to use Transline, a company that treats their workers and conducts its business in a way that is inconsistent with your own aspirations for Sports Direct to be on a par with likes of Selfridges and John Lewis,” Wright wrote to Ashley, in a letter published by the BIS committee on Tuesday.

He added that Sports Direct not having any formal written contract with Transline – as revealed in a report by the retailer’s lawyers published last week – “could make any decision to terminate the working relationship with Transline somewhat easier”.

The BIS committee report published in July raised concerns about employment conditions at Sports Direct’s Shirebrook warehouse, where most staff are employed through Transline and one other agency, The Best Connection.

The full story is here:

Earlier the Bank of England managed to successfully buy enough long-dated bonds in its weekly reverse-auction.

It received offers worth more than three times the amount of bonds maturing in 15 years and more that it wanted to buy as part of its quantitative easing programme. The offer to cover ratio of 3.21 times was down, however, from 4.14 the previous week.

And the Bank has run into controversy over the company bonds it will purchase as part of its corporate bond buying programme.

Wall Street lower

The fall in crude oil prices in the wake of the International Energy Agency’s forecast of oversupply well into next year has helped push US markets lower in early trading.

The Dow Jones Industrial Average is currently down 203 points or more than 1%, reinforcing the volatility surround stock markets at the moment.

Lagarde: We must make globalisation work

Over in Toronto, the head of the International Monetary Fund is calling for a new push to make globalisation work -- and attacking Donald Trump’s protectionist policies.

Christine Lagarde is acknowledging that the lowering of trade barriers has cost manufacturing jobs in the West. But she insists that politicians must keep working together to raise wages and improve standards of living.

Lagarde says:

“For two decades before the 2000s, global trade regularly grew by 7%, or twice the rate of the world economy. Today, however, trade growth is below that of the global economy – at about 2%.

“There is a growing risk of politicians seeking office by promising to ‘get tough’ with foreign trade partners through punitive tariffs or other restrictions on trade. I am deeply concerned about this – not only because I was a minister of trade, but because trade has been at the heart of the IMF’s mandate for more than 70 years.”

Here’s the full story.

Updated

The pound has weakened steadily this morning, and has now lost a whole cent to $1.3201 against the US dollar.

With inflation coming in below expectations, investors may see more wriggle room for the Bank of England to stimulate the economy further.

Updated

MP: Sports Direct must ditch agency

Iain Wright MP.

Newsflash: Sports Direct has been urged to cut ties with the agency that supplies thousands of workers to its warehouse.

Iain Wright MP, who chairs the BIS committee, says the retailer must drop Transline Group, to prove its commitment to improving workers’ conditions in Shirebrook.

The BIS committee quizzed Transline in June, after the “Victorian” conditions at Sports Direct were revealed (including a ‘six strikes’ policy that could see workers’ sacked for chatting too much, or being off sick).

They heard that some workers had lost 15 minutes pay for clocking out one minute earlier, or being slightly late back from a break. They also heard that Transline had paid some workers with pre-paid debit cards, which came with a £10 one-off fee, and a monthly management fee of £10 per month.

Wright says that reputable companies simply shouldn’t use such agencies:

We on the Committee are very keen to see improvements to working practices at Sports Direct. Mike Ashley says he is committed to making conditions better for staff at Shirebrook. If he means what he says, he could start by cutting his ties with Transline Group who have not been candid or credible in their evidence to the Business Committee and, as we heard in our evidence sessions, have deducted money from low-paid workers without proper explanation and justification. I would expect other companies using Transline Group will want to think seriously about using a company that treats their workers and conducts its business in this way”.

“Neither Mike Ashley nor the RPC report into working practices last week have explained why so many people at Shirebrook are employed through agencies, and why they are employed on short-term contracts, other than to reduce costs and avoid legal responsibility for their poor working conditions. If Sports Direct are going to become the Selfridges or John Lewis-style retailer which Mike Ashley has said he aspires them to be, then he needs to fix these poor contractual terms and make a real improvement to warehouse staff working conditions”.

Updated

Mario Draghi.

In other news... the head of the European Central Bank has urged the region’s politicians to give more help to those who have lost out from Europe’s integration.

Speaking in Italy, Mario Draghi said Europe must “protect the single market in all its forms” –a hot topic, given the Brexit vote.

But Draghi also chided European governments for neglecting those who have been left behind. The Europe project will founder unless it can protect its poorest from the consequences of open borders and deregulation.

Draghi says:

What is different from the past, however, is that today we must devote more attention to the redistributive aspects of integration, and especially to those people who have paid the highest price.

I do not think there will be significant progress in terms of opening up markets and competition if Europe does not listen to the demands of those left behind by a society built on the pursuit of wealth and power; if Europe, as well as being a catalyst for integration and an arbiter of its rules, does not also moderate its outcomes.

Draghi was in Trento to collect the 2016 Alcide De Gasperi Award, in memory of former Italian PM .

Here’s the full speech:

Reviving the spirit of De Gasperi: working together for an effective and inclusive Union

House price inflation slows

An estate agent’s ‘Sold’ sign outside a property.

Despite the shock of the Brexit vote, UK house prices kept climbing in July.

The ONS’s latest survey shows that property prices rose by 8.3% compared with July 2015.

UK house price inflation
UK house price inflation Photograph: ONS

That’s lower than in June, when house price inflation hit a blistering 9.7%. But it means that the average UK house now costs £217,000, £17,000 higher than in July 2015 and £1,000 higher than the month of the referendum.

Prices rose fastest in the East of England, although London was close behind:

UK house price growth by region

So anyone who bought a London house after the financial crash may have actually doubled their money....

UK house price growth by region

But could the boom be over? Howard Archer of IHS Global Insight predicts that prices could drop by up to 5% in 2017.

He says:

We believe housing market activity is likely to be limited over the coming months and prices will be increasingly pressurized as mounting uncertainty affects the economy and also constrains consumer confidence and willingness to engage in major transactions.

We suspect that business and consumer uncertainty will heighten in 2017 once the UK formally launches divorce proceedings from the EU by triggering Article 50 and the negotiations increasingly come to the forefront.

Our inflation news story

Here’s our economics editor, Larry Elliott, on today’s inflation report:

Cheaper hotel rooms, summer clothing bargains and cuts in the cost of alcohol helped peg the UK’s annual inflation rate at 0.6% last month.

Confounding City fears of a small rise in the cost of living, the Office for National Statistics said price falls had cancelled out increases in the cost of food, air fares and smaller reductions in fuel than in August 2015.

Economists had predicted that the annual inflation rate as measured by the Consumer Price Index would edge up to 0.7% or 0.8% in August due to imports becoming more expensive following the post-Brexit drop in the value of sterling.

The ONS said there was some evidence that a cheaper currency was pushing up the cost of goods leaving factory gates – an early indicator of inflationary pressure – but this had not fed into more expensive prices for consumers....

More here:

Updated

Ben Brettell, senior economist at Hargreaves Lansdown, explains how inflation could spike over the next few months:

Forecasts suggests the drop in sterling will ultimately add around five percentage points to the Consumer Prices Index, but it’s as yet unclear whether that will come via a gradual uptick in the inflation rate over a couple of years, or a shorter, sharper bout of inflation over the coming months.

The Bank of England forecasts consumer price inflation will hit 2% this time next year.

Tom Stevenson, investment director for personal investing at Fidelity International, reckons young people are experiencing a higher inflation rate than their elders.

He says:

Our Generational Inflation Barometer shows millennials have already had to contend with a higher inflation rate of 0.8% for the past few months, double that of older generations.*

“For the last two years it has been young people who have borne the brunt of the rising cost of living. The upward pressure comes largely from their spending on eating out, rent and bills. At the same time, they spend less on grocery shopping and eating in and therefore don’t benefit from the year-on-year drag on inflation which comes from cheaper food prices and non-alcoholic beverages.”

Getting old does have its compensations.... ;)

Updated

Today’s inflation rate is pretty low in historical terms -- CPI hit 5% twice following the financial crisis.

Inflation: what the experts say

Angela McGowan, chief economist at Danske Bank UK, warns that the fall in sterling will drive up inflation eventually....

Sam Tombs of Pantheon Economics agrees:

The BBC’s Andrew Verity highlights the rise in import prices:

But financial commentator Matthew Lynn reckons todays report shows that the EU referendum isn’t causing financial chaos

Import prices are rising sharply

Here’s another new chart, showing how imported raw materials are becoming pricier.

Import prices are 7% higher than in August 2015 - due to the tumble in the pound following the Brexit vote:

Updated

Important point: UK companies are definitely being hit by higher import costs -- it just hasn’t reached the high street....

ONS: Weak pound isn't hitting inflation, yet

It appears that UK companies are managing to absorb the impact of the weaker pound, rather than passing it onto their customers.

Mike Prestwood, head of inflation at the ONS, says:

“Fuel costs falling more slowly than a year ago as well as rising food prices and air fares all pushed up CPI in August, but these were offset by hotels, wine and clothing leaving the headline rate of inflation unchanged.

“Raw material costs have risen for the second month running, partly due to the falling value of the pound, though there is little sign of this feeding through to consumer prices yet.

Updated

On a monthly basis, prices actually rose by 0.3% in August compared with July.

The ONS attributes this to an increased in some food prices - such as bread, cereal products and meat.

But mineral waters, soft drinks and juices all got cheaper during the month.

Here’s more detail from today’s inflation report:

  • Transport: prices, overall, rose by 0.9% between July and August this year, compared with a rise of 0.1% between the same 2 months a year ago
  • Restaurants and hotels: prices, overall, fell by 0.4%, compared with a negligible change a year ago. The main downward contribution came from accommodation services, in particular overnight hotel accommodation, for which prices fell by more than a year ago.
  • Clothing and footwear: prices, overall, rose by 1.0% between July and August this year compared with a rise of 1.5% between the same 2 months a year ago. The downward effect came principally from garments, particularly children’s outerwear.

The pound has dipped, as traders react to the news that inflation was a little weaker than expected in August.

It’s not a major selloff, though:

Food price down, but transport inflation up

Today’s inflation report says:

The largest downward pull on inflation in August 2016 and for 2016 to date comes from prices for food and non-alcoholic beverages.

Upward pressures come from a variety of categories, most notably restaurant and hotel bills. Transport prices provided a downward pressure during 2015 and early 2016 but this has eased during 2016 and they now have an upward effect.

UK inflation: the details
UK inflation: the details Photograph: ONS

Updated

At 0.6%, UK inflation remains at its highest level since November 2014:

UK inflation over the last decade
UK inflation over the last decade Photograph: ONS

UK inflation rate sticks at 0.6%

BREAKING: Britain’s inflation rate has remained unchanged, despite the pressure from the weak pound.

The consumer prices inflation came in at 0.6% in August, matching July’s reading.

That’s weaker than the 0.7% which City economists had expected

More to follow...


IEA sees oil glut lasting longer

Newsflash: The world is going to be swimming in oil well into next year, according to new estimates from the top energy body.

The International Energy Agency reckons that supply will outstrip demand until at least the middle of 2017, and has revised down its forecast for demand growth.

That is likely to keep the oil price depressed, which could hold back inflation over the next year...

Pound dips ahead of inflation report

The pound has lost a little ground this morning, dipping by a third of a cent to $1.3299 ahead of the inflation report.

This is a busy week for UK economic data; we get unemployment on Wednesday, while Thursday brings new retail sales numbers and a Bank of England decision on interest rates.

Ana Thaker, market economist at PhillipCapital UK, says the pound’s value could fluctuate this week:

Sterling remains tentative ahead of the data release and with the deluge of data out this week, we are likely to see greater volatility in the currency as markets attempt to ascertain the health of the economy

The latest inflation data from the eurozone is pretty underwhelming.

Prices across Germany only rose by 0.3% year-on-year, despite the massive stimulus measures unleashed by the European Central Bank recently.

And Spain remains wedged in deflation, mainly due to cheaper energy prices.

City Skylines.

Elsewhere in the markets, retail chain JD Sports have jumped by 7.5% after impressing the City with a 73% jump in profits.

Quite a contrast with struggling rival Sports Direct, which last week predicted that earnings might shrink by a fifth this year.

Retail analyst Nick Bubb has crunched the numbers, and reports:

Well, given the astonishing profits growth reported by the booming JD Sports today, you may be wondering how much bigger its market cap is now compared to the beleaguered Sports Direct and the answer is that £2.6bn plays £1.9bn…

Ocado, though, is the worst performing company on the FTSE 250 - tumbling by 9%.

Analysts are disappointed that it still hasn’t landed any new distribution deals, to protect it from the thundering approach of Amazon. Ocado is also suffering from “sustained and continuing margin pressure” -- which basically means the supermarket price war ain’t over yet....

FTSE 100 struggles back from Monday's losses

The London stock market is open, and staging a very minor recovery after yesterday’s sharp selloff.

The FTSE 100 has gained 13 points (having lost 75 points yesterday). Housebuilders are among the risers, but mining stocks are dropping again.

Top risers and fallers in early trading
Top risers and fallers in early trading Photograph: Thomson Reuters

Michael Hewson of CMC Markets also reckons inflation may have risen to 0.7%, giving the Bank of England a potential headache.

He writes:

In the wake of the recent rebound in the UK economy shown in the recent August data, the latest inflation data looks set to show a sharp uptick as a result of the recent slide in the pound in the wake of the June Brexit vote.

This could well start to act as a headwind for the UK consumer in the months ahead, and while Bank of England governor Mark Carney may feel “serene” about the Bank of England’s recent and possible future actions, UK consumers may not feel as benevolent towards him or the central bank if the Bank of England’s over reaction to the recent Brexit vote causes price pressures to move sharply higher in the coming months.

Even if Britain’s inflation rate does rise this morning, it will still be significantly below the Bank of England’s target of 2%.

As this tweet shows, most central banks are undershooting their inflation targets; although India and Brazil can only dream of such a problem....

The agenda: UK inflation in the spotlight

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

Britain’s inflation rate may push higher today, as the weaker pound drives up the cost of imported goods.

Some economists predict that the Consumer Prices Index will rise to 0.7%, for August, up from July’s 0.6%. That would indicate that retailers are making consumers share the pain following the 10% drop in sterling since the Brexit vote.

James Brown, partner at consultancy firm Simon-Kucher & Partners, explains:

Inflation, as recorded by the consumer price index (CPI), is expected to have gone further up in August compared to July when it rose to 0.6% which was the highest level recorded since November 2014.

We forecast continued growth in inflation as higher import costs from the devalued sterling find their way into consumer prices. August is only the second month where CPI numbers are based on post-referendum figures.

If inflation does push higher, it might limit the Bank of England’s ability to ease monetary policy again to help Britain handle the fallout from Brexit. Having said that, most economic date since the referendum suggests the economy isn’t faring too badly....

Also coming up...

European stock markets are expected to recover some of Monday’s heavy losses, as investors stop fretting that US borrowing costs might be hiked next week.

As we covered in last night’s blog, Federal Reserve governor Lael Brainard has hinted that interest rates should only rise gradually.

Traders are also encouraged by overnight data from China, showing that industrial production and retail sales both grew last month.

Germany’s ZEW institute will release its regular economic sentiment survey at 10am, which may show whether investors are still worried about Brexit.

And on the corporate front, online supermarket Ocado and high street retailer JD Sports are reporting to the City right now:

Updated

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