UK faces Christmas squeeze as inflation hits 3.1%, outpacing wages – as it happend

Graeme Wearden

from Economics | The Guardian on 2017-12-12 18:27 (#3AFMP)

Food, fuel, airline fares and recreational costs have driven the cost of living up at its fastest rate since March 2012

Earlier

Oil price jumped after North Sea pipeline shut

6.27pm GMT

A late ps: petrol prices may rise by 3p per litre, due to the production freeze caused by the cracked Forties North Sea oil pipe, and the serious explosion in Austria today.

My colleague Adam Vaughan explains;

The RAC has warned British drivers they could be paying 3p a litre more for fuel by Christmas after the shutdown of a major North Sea pipeline hit oil prices.

The warning came as an explosion at a key European gas hub in Austria and disruption to supplies in Norway pushed gas prices to multi-year highs.

1.49pm GMT

Right, time for a recap...via our own Larry Elliott:

Britain's cost of living squeeze has intensified after the annual rate of inflation hit a near six-year high of 3.1% in November.

Figures from the Office for National Statistics (ONS) showed dearer computer games and a smaller fall in airfares than a year ago were two factors behind the unexpected increase from 3% in October.

1.44pm GMT

NIESR's head of UK macroeconomic forecasting, Amit Kara, fears that British workers' pay packets will remain under the cosh for some time:

"We expect inflation to peak at current levels in the final quarter of this year before dropping back to the target rate by mid-2019. The Bank will in our view raise the policy rate every six months until the policy rate reaches 2% by mid-2021, with the next increase in May.

Wage growth is likely to remain under pressure as a result".

1.38pm GMT

The energy market has been rocked by a major explosion at Austria's main gas line.

One person has reportedly been killed in the blast, which occurred around 8.45am local time, with 18 people injured. The pipeline supplies gas to Italy, which has been forced to declare a state of emergency:

UK spot natural gas prices just hit highest since 2013, rising as much as 40 per cent to 95p per therm.

Triple whammy:
* UK Forties Pipeline System shut potentially for weeks
* Explosion at Austria's main gas import hub
* Severe cold snap hitting country (River Clyde has frozen) pic.twitter.com/lqGpLE7vmm

1.33pm GMT

Just in: Inflation may be building in America too.

Producer prices (what companies charge for their wares) rose by 0.4% last month, faster than expected. On an annual bases, producer prices are up by over 3%.

*U.S. NOV. PRODUCER PRICES INCREASE 3.1 % FROM YEAR AGO

US Producer Price Index up 0.4% in Nov, vs 0.3% increase expected https://t.co/Msg3MvkXHn

1.25pm GMT

Instead of battling inflation, Bank of England governor Mark Carney has been busy fighting another noble course - climate change.

Bank of England governor Mark Carney has announced growing global support for a new initiative designed to help pave the way to a low-carbon economy by persuading firms to come clean about their exposure to climate-change risks.

Speaking at the One Planet Summit in Paris, Carney said he was delighted that 237 companies with a combined market capitalisation of $6.3tn (4.7tn) were now backing the scheme.

1.10pm GMT

ONS Head of Inflation Mike Prestwood has summed up this morning's data:

"CPI inflation edged above 3% for the first time in nearly six years, with the price of computer games rising and airfares falling more slowly than this time last year. These upward pressures were partly offset by falling costs of computer equipment.

"The prices of raw materials and goods leaving factories continued to increase as oil and petrol prices continued to rise.

12.56pm GMT

While inflation has risen, house price inflation in the UK has dipped slightly - due to a slowdown in London.

The average house price increased by 4.5% in the year to October 2017, down from 4.8% in September 2017.

12.53pm GMT

Rising inflation is a severe blow to families who rely on state benefits.

Many of those benefits are currently frozen under the government's austerity programme, which means they are shrinking in real terms.

"Falling wages and frozen benefits mean that many families will struggle to find the money to keep up with rising inflation. Today's update means that a family of four on the minimum wage will be 500 worse off every year due to the benefit freeze.

"The cost of basic essentials is rising even faster than the headline inflation figure: food is up 4.1% and energy 6.4% in the last year. This means people on lower incomes are being hit particularly hard as they need to use more of their income to cover these costs.

12.21pm GMT

Mark Carney needs to give his letter to Philip Hammond plenty of attention, as parliament's Treasury committee are planning to grill him about it next year.

Nicky Morgan MP, Chair of the Treasury Committee, says:

"Inflation rising faster than earnings is squeezing household finances, driven in part by rising prices for household essentials such as food and transport.

"The Governor will now have to write to the Chancellor to explain why the Bank has missed its inflation target by more than one per cent, and what action the MPC intends to take.

12.03pm GMT

The TUC have created a useful, and frankly depressing, chart showing how food prices have risen over the last year.

If you're curious about food inflation, here's a (way too) detailed chart showing which food prices have risen the most over the past 12 months.

A short summary:

- Consider ditching the butter and buying margarine instead
- Avoid fish
- Just eat pizza pic.twitter.com/dOKAGaBlzm

11.31am GMT

Disappointingly, we must wait until February 2018 to see Mark Carney's letter to Philip Hammond explaining why inflation has missed the government's 2% target.

"With Brexit uncertainty still weighing heavy on the Bank's forecasts, we think Mr Carney's words are much more likely to be a robust defence of the Bank's existing position than any plea to the Chancellor to forgive the MPC for its sins in allowing inflation to run away with itself."

"Consumer prices rose relatively strongly in November, bringing inflation to 3.1% from a year earlier, and requiring the Governor of the Bank of England to write a letter to the Chancellor explaining the divergence of over 1 per cent from the inflation target.

The rise is likely to embolden earlier actions by the Monetary Policy Committee to raise rates for the first time in over ten years last month.

Dear Phillip Hammond

Inflation is above 3% because my colleagues and I cut Bank Rate and added 60 billion to QE in August 2016. Sorry.

All the best.

Mark Carney
Governor of the Bank of England
B45 0HF Birmingham

Dear Mr Hammond,

Please see the value of sterling.

Yours,
Mark Carney

Writing it in a letter seems so old fashioned. Mr Carney should send the Chancellor a Snapchat DM.

10.58am GMT

Peter Dowd MP, Labour's Shadow Chief Secretary to the Treasury, argues the Conservative government must take the blame for allowing wage growth to lag behind inflation.

Dows says:

"Today's rise in inflation to its highest level in over five-and-half years is extremely concerning, and once again reveals that after seven years of Tory economic failure, this Government has no answers to the problem of wages continuing to fail to keep up with prices.

"We shouldn't forget that there will be millions of working families who will be struggling this Christmas already as a direct result of government policies such as the benefits freeze and the public sector pay cap; this is a further reminder of just how bad this double whammy of rising prices and Tory austerity policies will be this month for them.

10.57am GMT

The UK's financial secretary to the Treasury, Mel Stride, says he understands that Britons are suffering from rising inflation:

"Inflation is expected to fall over the coming year, but I recognise families are feeling a squeeze now.

We are determined to help, which is why the Autumn Budget cut income tax, boosted basic pay by more than inflation and froze alcohol and fuel duties"

10.50am GMT

The pound initially jumped when the inflation figures were released, as foreign exchange traders swiftly calculated that it made an interest rate rise more likely.

But that effect didn't last long.

"Sterling's gains from the release were extremely short lived, and the pound is now once again under pressure after Guy Verhofstadt made comments about David Davis scoring an "own goal" on the Brexit deal. The last hour of price action demonstrates quite clearly that for sterling, Brexit is still the only game in town."

Remarks by David Davis that Phase one deal last week not binding were unhelpful & undermines trust. EP text will now reflect this & insist agreement translated into legal text ASAP #Brexit

Oops. European Parliament Brexit pointman Verhofstadt says David Davis comments on deal were 'own goal', there will now be 'hardening of position' of EU leaders at summit and EP

10.31am GMT

Britain's inflation squeeze may actually intensify over the festive period, warns Ben Edwards, Portfolio Manager at investment giant BlackRock:

UK households may have to continue to endure higher costs in some segments over Christmas particularly as food retailers continue to pass on higher producer prices and airfares take their normal seasonal trip north.

10.24am GMT

There's little chance of UK wages catching up with inflation in the next few months, warns Andrew Sentance, senior economic adviser at PwC.

Sentance also blames the weak pound for pushing up the cost of living, saying:

The fall in sterling since the Brexit vote continues to push up the prices of imported goods and the strength of the global economy is also contributing to upward pressure on food and energy prices.

"We are probably close to the peak for inflation now, but it will only fall back gradually next year. That means price rises will continue to run ahead of pay growth in the first half of 2018 - continuing the squeeze on real incomes and consumer spending. That is likely to continue to act as a dampener on economic growth in the next few quarters.

10.21am GMT

With inflation rising, shoppers need to be particularly savvy this Christmas, warns Hannah Maundrell, Editor in Chief of money.co.uk.

She says people should pay particular attention to rising food costs, or risk a nasty shock at the till.

With inflation now at a 6 year high there's no escaping the fact the luxury of low inflation is over.

"The cost of food, non alcoholic beverages, transport and fun activities are creeping up so if you're not careful your household finances could be stretched.

10.18am GMT

Digging into the inflation report, you can see that the cost of bread has jumped by 5.3% in the last year.

10.04am GMT

10.02am GMT

This latest rise in inflation shows that Britain is still suffering from the plunge in the pound after the Brexit vote in June 2016.

As Maike Currie of Fidelity puts it:

Just two years ago, Mark Carney was writing his fourth letter to former Chancellor, George Osborne to explain why prices were in deflationary territory.

But in the past year, British households have suffered an ongoing pinch on their spending power since sterling's Brexit-induced slum

For higher airfares pushing up inflation read higher oil prices and of course double whammy of exchange rate due to depressed price of sterling

9.59am GMT

The jump in the cost of food and fuel in the last year will hit the eldest and most vulnerable particularly hard, says Maike Currie, investment director for personal investing at Fidelity International.

9.56am GMT

Today's inflation figures shows that food and non-alcoholic drink prices have jumped by 4.2% in the last 12 months.

TUC General Secretary Frances O'Grady says this will hurt families this Christmas.

"Christmas dinner is going to be a lot more expensive this year. Food prices have gone up at twice the rate of wages.

"The government is failing to deal with Britain's cost of living crisis. Working people need a pay rise. They shouldn't have to worry about putting the turkey on the table."

9.51am GMT

The Bank of England won't be happy to see inflation over 3% either:

UK inflation rises to 3.1%, the highest in nearly 6 years and forcing BoE governor Mark Carney to write to the Chancellor to explain why it is outside than the Bank's 1-3% target range. pic.twitter.com/WUKhQqVjJ5

9.48am GMT

The jump in UK inflation in November is a nasty shock for City economists, who had hoped that it might have peaked in October (at 3.0%).

Aberdeen Standard Investments Chief Economist Lucy O'Carroll explains:

"This is slightly higher than expected and will prompt a letter from Bank of England Governor Carney to the Chancellor, explaining why inflation has overshot its target by this margin and what the Bank will do about it.

"It's quite possible that inflation is now close to its peak. But some of the latest surveys suggest that service sector costs and prices are rising. Given how dominant services are in the economy, this could feed through to inflation overall.

The Bank of England has a tricky tightrope to walk. Too much inflation could threaten the Bank's credibility and therefore its grip on the economy. But they need to keep consumer spending, the engine of the UK economy, chugging along too.

If inflation keeps creeping up, or remains elevated, then the chances of the engine sputtering rise incrementally."

9.45am GMT

9.42am GMT

Britain's inflation rate has been driven up to 3.1% by transport costs, food, and recreational spending (such as computer games):

This charts shows the details:

9.35am GMT

Breaking! UK inflation has hit its highest level in almost six years, as Britain's cost of living squeeze continues to bite.

The consumer prices index rose by 3.1% in the 12 months to November, the highest level since March 2012.

9.26am GMT

Talk about bad timing, eh?

Ineos only took ownership of the Forties pipeline from BP in late October. The discovery a crack in the pipe must be a nasty shock to the company's management, and might trigger a heated conversation with BP HQ. Still, buyer beware and all that....

#Oil tops $65 after the closure of the 450Kbpd Forties pipeline in the North Sea. No timeframe yet on a restart. #OOTT pic.twitter.com/cRSXHzbe2W

9.09am GMT

Tim Crotty, director of INEOS, is discussing the pipeline crack on Bloomberg TV now.

8.53am GMT

The cost of wholesale gas in the UK has jumped by almost 6% this morning, reports Reuters:

8.38am GMT

The impact of the Forties pipeline shutdown is 'rippling through' world energy markets, says Bloomberg.

That's because the North Sea is a major oil supplier, and also because Brent crude is a key benchmark of energy prices.

The U.K. link is critical because flows through it make up the single largest constituent part of so-called Dated Brent crude, which helps settle more than half the world's physical oil prices. It feeds the Hound Point export terminal near Edinburgh in Scotland and handles supplies from over 80 fields, and the shutdown forced Apache Corp.to suspend operations at its nearby Forties asset.

"It's more than just a supply disruption because it's more significant as a price maker," said Olivier Jakob, an analyst at Petromatrix GmbH who's based near Zug in Switzerland. "There's one thing which is the volume of oil which is lost, but it's also that it's a key price benchmark."

A hairline crack in one of the world's most important oil conduits is rippling through crude markets https://t.co/COoRB3iD6r via @helloimserene @carrzee

8.30am GMT

Reuters' Alex Lawler reckons this is the first complete shutdown of the Forties pipe in around six years:

Brent crude trades above $65, first time since 2015, after unplanned Forties pipeline shutdown. We think the last time the pipeline had a complete shutdown was in 2011 due to an unexploded WW2 bomb being found nearby https://t.co/9V0nMtmrrG

Thank goodness the part of the 450K bopd Forties they need to repair is onshore (nr Aberdeen). If it was offshore in North Seas, it'd be shut for more than a few weeks #brent #crude #oil

8.18am GMT

The UK government has insisted that oil supplies won't be affected by the Forties pipeline shutdown.

A spokeswoman said:

"There is no security of supply issue for fuel or gas supplies as a result of the repairs needed to the Forties pipeline.

The government will continue to liaise with industry operators to monitor the situation to ensure repairs are undertaken as quickly as possible."

This should be an interesting Christmas challenge for Theresa May and her "Dixon of Dock Green" government;
Britain hits a massive cold snap ... and the biggest pipeline shipping oil/gas/heating to the country is now shut down "for weeks".

Can't see a problem here ...

8.11am GMT

The gap between Brent crude and US oil (WTI) has now widened to over $7 per barrel, a level last seen in August 2015, say analysts.

This shows that "supply disruptions can no longer be ignored in tight markets", says Hussein Sayed, Chief Market Strategist at FXTM.

8.03am GMT

Here's energy correspondent Adam Vaughan on the Forties pipeline outage

Fiona Legate, a senior analyst at Wood Mackenzie, said the shutdown of the Forties Pipeline System, even if only temporarily, would have wide-reaching implications the UK oil and gas industry. Apache, a Texas-based company with operations in the North Sea, said it had ceased production as a result.

The Health and Safety Executive said: "We continue to monitor the situation, as we have since we were made aware of the issues with the pipeline."

8.00am GMT

The cost of Brent crude oil has hit its highest level since June 2015, after one of Britain's most important oil pipelines was unexpectedly shut.

7.44am GMT

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

Source	RSS or Atom Feed
Feed Location	http://feeds.theguardian.com/theguardian/business/economics/rss
Feed Title	Economics \| The Guardian
Feed Link	https://www.theguardian.com/business/economics
Feed Copyright	Guardian News & Media Limited or its affiliated companies. All rights reserved. 2024