UK inflation sticks at 3%, as cost of living squeeze continues - as it happened
All the day's economic and financial news, as Britain's UK consumer prices index remains close to a six-year high
- Latest: Inflation higher than expected in January
- PwC: Real wages squeeze will continue
- Fears for borrowers if rates rise
- The key inflation charts
- TUC: Real wages are still falling
Earlier:
5.44pm GMT
Despite an opening fall on Wall Street after two trading days of recovery, markets in Europe had a fairly calm session.
With the euro gaining some ground against a weaker dollar, they ended slightly down on the day but there was by no means any sustained burst of selling. Italy was among the worst performers, as investors started to fret about the country's forthcoming election.
4.29pm GMT
Total household debt increased 1.5% to 13.15tn in 2017Q4, marking 5th consecutive year of positive annual growth a' https://t.co/yybhzpbMuF pic.twitter.com/6vulYsaRCQ
4.24pm GMT
As US interest rates do go up, it will put more pressure on households who have borrowed heavily.
And the latest figures show an increase in debt, up $193bill to $13.15tn in the three months to December compared to the previous quarter. The figure was $402bn higher than the same time in 2016. The increase was driven by a rise in mortgage loans.
3.59pm GMT
The markets have dealt fairly well with the stronger than expected UK inflation figures, says Connor Campbell, financial analyst at Spreadex:
Though the global indices are broadly negative, the markets haven't coped too badly with a pretty damn hawkish UK CPI reading. It'll be interesting to see if investors have the same kind of reaction to tomorrow's US figures - after all, it was fears that the country's inflation would continue to creep higher that helped spark the recent market bloodbath.
3.38pm GMT
Meanwhile in Cyprus it has been announced that finance minister Harris Georgiades, much plaudited for masterminding the island's economic recovery, will retain his position in a new government unveiled today. Helena Smith reports:
The news will go down well in Brussels. Georgiades is feted for almost single handedly overseeing Cyprus' extraordinary return to growth after it was bailed out to the tune of a10bn during its banking crisis five years ago. The island, which exited its bailout programme ahead of schedule in March 2016 following stringent implementation of reforms, was one of the fastest growing economies in the euro area with a growth rate of 3.8 % in 2017.
At 7.4 % it also registered the biggest year-on-year drop in government debt.
3.19pm GMT
New Federal Reserve chair Jerome Powell has said the global economy has recovered strongly since the financial crisis, but the bank remained alert to any risks to stability.
In opening remarks at his swearing in ceremony, he said:
We are in the process of gradually normalizing both interest rate policy and our balance sheet with a view to extending the recovery and sustaining the pursuit of our objectives. We will also preserve the essential gains in financial regulation while seeking to ensure that our policies are as efficient as possible. We will remain alert to any developing risks to financial stability.
3.00pm GMT
European markets appear relatively untroubled by the falls in the US, which seem fairly contained so far.
The FTSE 100 is off its best levels and is virtually flat on the day, but Germany's Dax and France's Cac have recovered from the worst of their earlier losses and around both down around 0.3%.
2.38pm GMT
After two days of recovery, US markets are falling back again at the open.
The Dow Jones Industrial Average is down 95 points or 0.4% while the S&P 500 and Nasdaq Composite both opened around 0.5% lower.
Headline CPI (including food and energy) came in at +2.2% in November but slipped back to 2.1% in December. Investors are hoping for further evidence that inflation has topped out for now. If so, and we see another modest reduction to 2.0% then this should be enough to push bond yields down and equities up.
But in the current environment we can expect US Treasury yields to soar if January's number were to come in at 2.1% or higher. This would be a problem as the key 10-year Treasury note yield is dangerously close to testing 3.0% - a four-year high, increasing fears that the 35-year bond bull market is finally over. This would signal higher borrowing costs to come which would not be good for global equities.
2.09pm GMT
The pound has come off its best levels against the dollar.
After hitting a high of $1.3923 following the stronger than expected inflation figures, it has now drifted back to $1.3874, a 0.3% gain on the day. Despite the unchanged inflation figure of 3% - rather than the expected dip - an imminent UK interest rate rise is not necessarily a done deal, says Forex.com market analyst Fawad Razaqzada:
The pound staged a small rally after this morning's publication of the latest UK inflation figures, before giving back a sizeable chunk of its gains against the dollar. It actually turned negative against the euro and yen, though it was holding its own better against commodity currencies...Overall inflation rose more than expected, and the pound's initial response was a swift rally. However sterling came off its best levels around midday as traders who bought the news, took profit.
It is worth noting that the Bank of England will probably not be surprised by the outcome of today's inflation figures after it predicted that CPI will remain elevated and that it intends to combat this by raising interest rates earlier and faster than previously expected. But is the BoE correct in its projections? Can they be trusted?
1.51pm GMT
One of the concerns driving the recent turmoil in the markets was a rise in inflation and the subsequent belief that central banks might start raising interests rates more quickly than expected.
But Capital Economics believes that inflation may not rise very far. Chief global economist Andrew Kenningham said:
For a start, underlying inflation has remained low and stable recently. Core inflation in the OECD was 1.9% in December. Moreover, it has been between 1.5% and 2.0% for the past six years, and 1.1% and 2.5% since 2003. The stability of underlying inflation for most of this century suggests that only a huge economic shock, or major structural change, would dislodge it far from the typical 2% target.
Of course, the average inflation rate can mask big variations between countries. But even in economies which are closest to full employment, inflation has remained low. In Japan, where the unemployment rate is at its lowest level since 1993, inflation excluding fresh food and energy is only 0.3%. And in Germany, the unemployment rate is at its lowest since 1980 but core inflation is just 1.5%.
The big picture is that global inflation is edging up, not taking off. The upshot is that while interest rates are likely to rise gradually over the next year or two, there is no need to panic. We expect government bond yields to rise, but remain very low by historical standards, with ten-year US Treasury yields, for example, unlikely to get much higher than 3% by the end of this year.
1.20pm GMT
If you're just tuning in, here's our news story on today's inflation figures:
Related: UK inflation remains at 3% as living standards squeeze continues
1.19pm GMT
Britain's stock market is holding onto its earlier gains, and so is the pound.
The FTSE 100 is currently up 20 points, or 0.3%, on top of Monday's 1.2% jump.
US Opening Calls:#DOW 24525 -0.31%#SPX 2649 -0.25%#NASDAQ 6509 -0.23%#IGOpeningCall
12.47pm GMT
In other news (which I missed earlier), UK house prices are rising faster than wages or the headline inflation rate.
Average house prices in the UK rose by 5.2% in the year to December 2017, up from 5.0% in November 2017. That's twice as fast as earnings, underlining how hard it is to get onto the property ladder (even though price rises have slowed).
12.05pm GMT
Paul Mumford, fund manager at Cavendish Asset Management, is hopeful that inflation might fall this month:
He explains:
January's figures exclude the full effect of the recent market shake out, a subsequent decline in oil prices and weaker sterling against the dollar. It could easily be that inflation drops back in February, something that would take the pressure off of rates.
11.36am GMT
Amit Kara, head of UK macroeconomic forecasting at thinktank NIESR, predicts that UK interest rates will rise in May (probably from 0.5% to 0.75%).....and keep rising over the next couple of years:
Kara says:
UK January CPI inflation was unchanged at 3.0%. Inflation has likely peaked and is set to return to the target rate of 2.0% over the next eight quarters.
Our forecast assumes a rate increase by the MPC in May and every 6 months after that until it reaches 2%."
Inflation remains high at three percent with wages not keeping pace, and for the thousands of people we hear from each week at National Debtline, meeting day-to-day costs, such as energy, water and council tax continues to be a challenge.
"Recent research shows that as many as half of all low income households are already struggling. We are concerned that the slightest change in circumstances, such as a further interest rate rise, could push many of these households into further difficulty.
11.14am GMT
At 3%, the UK's consumer prices index is close to the six-year high of 3.1% struck in November.
And inflation is becoming an increasingly home-grown problem, rather than simply being driven by higher import costs.
"Contrary to expectations, inflation held steady on last month, meaning households will have to wait until later in 2018 for expected falls to materialise.
"But the drivers of inflation are changing. While the price of oil is something to watch in future as it pushes up input prices for UK manufacturers, the effect of the post-Brexit pound devaluation is waning slightly with items that are less import-intensive driving the recent rise ininflation.
10.51am GMT
Bad news for UK households: economists expect UK inflation to only fall slowly during 2018.
John Hawksworth, chief economist at PwC, fears that the real wage squeeze will continue for most of this year:
"Inflation remained stuck at 3% in January, still well above earnings growth.
"We do expect inflation to fall back gradually over the course of the year, but this will be a slow process given that global commodity prices have generally been on an upward trend in recent months. The squeeze on real earnings may therefore persist until late in 2018, which will continue to dampen consumer spending growth this year."
Economists have been expecting inflation to gradually fall back to the 2% target over the coming year or so, starting today with a drop to 2.9%.
But in fact the rate remained at 3.0%, with price rises driven by clothing, footwear and recreational goods/services. Inflation's now been above target for 12 straight months.
10.32am GMT
The news that recreational costs (such as zoo and parks) prevented inflation falling last month has caused a bit of a stir in the City.
James Smith of ING bank predicts that this trend won't last:
Core inflation rose more than expected to 2.7%, as recreation prices fell considerably less rapidly than would be seasonally expected at the start of the year. Some of this is reportedly down to entrance fees at zoos and gardens, but given that much of the recreation category (things like computers and TVs) is fairly sterling-sensitive, we wouldn't expect this resilience to last. That's because the sharp fall in the pound after the Brexit vote has now more-or-less fed through to consumer prices and the rate of pass-through is starting to ease.
The recent sterling strength will only accelerate this process.
Roar data: UK inflation sticks at 3%, thanks in part to zoos https://t.co/tJ2lmWRIa6 pic.twitter.com/CLFjx6aArw
CPI's above two
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Dearer to see the gnu
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gnu https://t.co/f2FyhKqHYc
Animal Spirits? UK inflation holds at 3% as Zoo entry prices remain elephantly high ...
10.15am GMT
Encouragingly for consumers, the prices charged by UK factories rose at a slower rate in January.
The annual producer price inflation rate dipped to 4.7%, down from 5.4% in December. That suggests that the impact of the pound's Brexit-vote slump may be fading.
"Factory goods price inflation continued to slow, with food prices falling in January. The growth in the cost of raw materials also slowed, with the prices of some imported materials falling."
9.58am GMT
With inflation stuck at 3%, British workers are still suffering a cost of living squeeze.
Average wages only rose by 2.4% per year in the three months to November (the most recent figures), or by 2.5% if you include bonuses.
"Inflation is still outpacing wages and working people's living standards are falling fast. The government can't keep on standing by and doing nothing. A plan to boost wages is urgently needed.
"Public sector workers must get a proper pay rise. The minimum wage must go up to 10 as quickly as possible. And the Chancellor must boost infrastructure spending in his spring statement - this would help counter the loss of confidence in the economy caused by Brexit uncertainty."
New stats today show CPI #inflation was 3% in January. We're helping families with the cost of living by ai cutting taxes and increasing the National Living Wage pic.twitter.com/0Dxt2liIOj
9.57am GMT
The Bank of England is charged with keeping Britain's inflation rate close to 2%, so today's data show it has a lot more work to do.
Dennis de Jong, managing director at UFX.com, says:
"There is no breathing space for Mark Carney and the Bank of England who continue to battle with high inflation, though at least that figure has steadied and not risen further.
"Despite many expecting the figure to drop, inflation remains at 3%, sitting way above the Bank's 2% target, though policy makers will at least be pleased to see producer prices fall back.
Today's number will keep the May Bank of England meeting 'in play' for an interest rate hike.
We think that this is still too early for a hike as caveats on Brexit and the sustainability of growth remain but as we heard last Thursday, the sticky inflation picture is putting gradual but sooner increases in the base rate into more people's central scenarios of what happens in the UK in 2018."
9.47am GMT
The pound has jumped on the back of the news that Britain's inflation rate was higher than expected last month.
Sterling gained half a cent to $1.39, as traders calculated that it makes an early interest rate rise more likely.
Pound briefly rises to $1.3904 after U.K. inflation stays at 3% in January vs. 2.9% estimate pic.twitter.com/ylBpQFUit4
9.41am GMT
UK food prices fell between December and January (which makes sense, as people tighten their belts after the Christmas festivities).
The ONS says:
This effect came from prices for a wide range of types of food and drink, with the largest contribution coming from a fall in meat prices.
9.39am GMT
The Office for National Statistics says that petrol prices had a downward impact on inflation....but recreational activities kept the cost of living up.
The largest downward contribution to change in the rate came from prices for motor fuels, which rose by less than they did a year ago.
The main upward effect came from prices for a range of recreational and cultural goods and services, in particular, admissions to attractions such as zoos and gardens, for which prices fell by less than they did a year ago.
9.31am GMT
Newsflash: Britain's inflation rate remained at 3% in January.
That's higher than the 2.9% that the City had expected, and means the cost of living squeeze continues.
9.26am GMT
The MSCI world stock market index has recovered a small slice of last week's slump:
9.19am GMT
The US dollar has weakened after the US government outlined its 2019 budget last night - showing whopping deficits in the years ahead.
President Donald Trump's budget for the upcoming fiscal year calls for steep cuts to America's social safety net and mounting spending on the military.
That combination in the $4.4 trn budget plan submitted Monday to Congress steps far back from Trump's promises last year to balance the federal budget. If enacted, his plan would establish annual $1 trillion-plus deficits, a major reversal for Republicans who objected to increased spending during the Obama administration.
9.01am GMT
Asian stock markets have closed with gains across the board...apart from Japan, where the stronger yen pulled the Nikkei down.
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8.58am GMT
European stock markets are being held back today by the weakness of the US dollar.
The euro has gained 0.3% against the US dollar to $1.232, which (as in Japan) has a negative impact on shares.
8.28am GMT
Investec economist Victoria Clarke predicts that Britain's inflation rate held steady at 3% las month - dashing hopes of a fall to 2.9%
She writes:
We expect CPI inflation to trend lower over the year ahead, although it may be a slow creep. Indeed, we are pencilling in a steady 3.0% in January.
We expect this to be more than offset by drags from elsewhere in the wider transport category, given that the rise in petrol prices looks set to be notably less than in January 2017. Another negative influence is the food price category.
8.17am GMT
Britain's stock market is gaining a little ground in early trading.
Demand remains strong for the Western Mediterranean and Caribbean (despite hurricane disruption and reflecting demand from North America) and continues to improve for Turkey and North Africa.
8.09am GMT
Japan's stock market isn't coming to the party, though.
The Nikkei fell 0.7% today to 21,244.68. The selloff came as the yen hit a five-month high against the US dollar, which hurts Japanese exporters.
7.58am GMT
China's stock market helped led the recovery in Asia today, with South Korea and Hong Kong close behind.
What we're seeing right now is a continuation from Friday's bullish session that allowed the global stock markets to breathe a bit easier and with bond yields retreating slightly from their recent highs equity traders are looking for bargains.
Nevertheless, it is still too early to suggest that the correction that we've witnessed since the beginning of the month is over.
7.38am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After last week's turmoil, a degree of calm has returned to the financial world.
"It's a golden opportunity to accumulate some good, quality stocks.
Asia's stocks are generally higher, with signs that markets are becoming more stable https://t.co/PcCK453kP3 pic.twitter.com/TJwC6ALRaZ
Overnight the Dow had its best session in two years jumping over 400 points. It's fair to say that whilst volatility has eased up from the 1000 plus swings last week, these are still much more volatile sessions than what we are used to.
The impressive rally on Wall Street spilled across into Asian markets, which posted healthy gains across the session. Unsurprisingly European bourses look set to follow suit and push on higher at the open.
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With the oil price having risen significantly in recent months it now looks more likely that CPI inflation will be relatively slow to fall in 2018 even though the impact of previous exchange rate depreciation starts to fade.
Related: UK interest rate rise is coming, Bank of England tells borrowers
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