UK inflation falls to 13-month low, sending pound sliding – as it happened
Cheaper airfares helped to pull Britain's inflation rate down to 2.4% last month
- Breaking: CPI fell to 2.4% in April
- Airfares dropped last month thanks to early Easter
- Sterling has fallen to $1.335, lowest since December 2017
- Introduction: Why today's UK inflation figures matter
5.50pm BST
After a positive couple of days, European markets fell sharply as investors cashed in come of their gains amid renewed political concerns.
President Trump's negative comments on the US-China trade talks prompted renewed fears of a trade war between the world's two biggest economies, while he also suggested the much hyped meeting with North Korea might not now take place.
5.46pm BST
Over in Turkey, the central bank has acted to stem a slide in the lira by raising one of its key lending rates to 16.5%.
The bank lifted its late liquidity window rate by 300 basis points to 16.5%, in the wake of a more than 5% fall against the dollar earlier in the day, making a near 20% drop for the year. Investors have been nervous about President Erdogan's plans to tighten his grip on monetary policy.
4.55pm BST
The FTSE 100 has closed below 7800 after reaching new peaks in recent days. Miners are among the leading fallers following President Trump's negative comments about the progress of US-China trade talks. Fiona Cincotta, senior market analyst at City Index, said:
Renewed fears over a potential trade war with China, in addition to concerns that OPEC could ease the self-imposed production cut in oil, sent the FTSE tumbling on Wednesday. Whilst the FTSE shed 1.3%, it was faring slightly better than its European peers thanks to the support of a significantly weaker pound.
Commodity stocks dominated the lower reaches of the FTSE; miners, which are particularly sensitive to the health of the Chinese economy, were hit by concerns that a trade deal between the US and China may not ever be achieved, meaning trade tariffs and a potential trade war were suddenly, once again, very probable outcomes.
4.07pm BST
Heading into the close of European trading, and markets have dropped sharply after the recent boom. Chris Beauchamp, chief market analyst at IG, said:
The atmosphere on equities this afternoon is gloomy, to say the least. The certainties of earlier in the week have ebbed away, and what's worse is that new worries have arrived to concern investors. Signs of di(C)tente between the US and China have decreased, reviving the great trade war fear, while the deterioration in Japanese and eurozone PMIs have sent chills down the spines of those hoping that the synchronised global expansion had further to run. Eurozone data in particular keeps getting worse, and the longer this goes on the more fears will rise that this 'transitory weakness' is not so transitory after all.
All is not yet lost, particular for European markets, which have risen so dramatically in recent weeks, but the lack of progress in US stocks is beginning to prompt the spread of fear to other parts of the equity space as well.
3.55pm BST
Back with the flagging eurozone consumer confidence figures, and ING Bank economist Peter Vanden Houte says it is hard to see stronger growth in the region in the coming months:
Eurozone consumer confidence fell in May to 0.2 from a downward revised 0.3 in April. The strong increase in oil prices in the course of this month might have been one of the factors weighing on confidence. That said, the current confidence reading remains close to historical highs and based on long-run correlations, it is compatible with consumption growth between 2-2.5%. However, that is not what we have seen, as the current growth rate in consumption expenditure is closer to 1.5%.
The disappointing performance of consumption in this recovery is not new. Since 2010, only three out of 32 quarters have seen year-on-year growth in consumer expenditure above overall GDP growth in the Eurozone. Although unemployment has now been falling five years in a row, it is still above pre-crisis levels. At the same time wage growth has remained very subdued. All of this means that consumption as a driving force in the growth story now comes even later in the cycle than usual. But for that to happen both employment and wage growth should have to pick up in the coming quarters and a further slide in sentiment should be avoided. A lot of conditions at this juncture. That's why we continue to see consumption as a growth support, but not strong enough to foster a genuine growth acceleration in the remainder of this year.
3.41pm BST
After hitting $80 a share in recent days, oil prices have been slipping back and lost more ground after US stockpiles unexpectedly rose last week.
US crude stocks rose by 5.8m barrels compared with forecasts of a decrease of 1.6m, showing demand was less than expected. Gasoline stocks climbed by 1.9m barrels, according to the Energy Information Administration, rather than the anticipated 1.4m barrel drop.
3.17pm BST
Eurozone consumer confidence was slightly worse than expected in May, according to the latest figures from the European Commission.
Its eurozone consumer confidence index dipped from 0.3 points in April to 0.2 points, compared to forecasts of an unchanged figure. In the wider European Union, sentiment rose by 0.4 points to -0.1 in May.
3.10pm BST
Some positive US economic data, with higher manufacturing and service sector figures.
IHS Markit's preliminary manufacturing PMI for May rose from 56.5 in April to 56.6, a 44 month high. Its services business activity index climbed from 54.6 to a three month high of 55.7, while the composite index went from 54.9 in April to 55.7.
The flash May PMI surveys point to an encouragingly solid pace of economic growth of 2.5- 3% with monthly job gains running at just over 200,000, though the interesting action is coming on the prices front.
Input costs measured across both manufacturing and services are rising at the fastest rate for nearly five years, with the goods-producing sector seeing the steepest cost increases for seven years in recent months.
2.37pm BST
US markets have followed their European counterparts into negative territory, as optimism over the US-China trade talks faded after comments from President Trump, who also suggested the planned summit with North Korea may not go ahead after all.
Ahead of the latest minutes from the Federal Reserve, the Dow Jones Industrial Average has fallen 125 points or 0.49% while the S&P 500 opened 0.38% lower and the Nasdaq Composite lost 0.59%.
2.33pm BST
POTUS' tweet oft good news pending for US autoworkers is seen as a hint of progress on NAFTA. $CAD and $MXN turn better bid.
2.24pm BST
It's time for some more outpourings from President Trump's twitter account, and this time it appears to be a jobs promise:
There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!
2.06pm BST
The pound continues to come under pressure, down 0.9% against the dollar at $1.3316 and losing more than 2% against the Japanese yen, the second biggest daily drop this year.
The unexpected fall in inflation in April has made an interest rate rise in August less likely, according to many commentators. But not everyone agrees:
UK inflation fell in April because data are collected mid-month, so didn't capture the usual rise in transport prices around Easter this yr. April's print matches the MPC f'cast, and inflation looks set to RISE over the summer due to aoil prices. An Aug rate hike remains likely. pic.twitter.com/55ijGclqS1
2.03pm BST
Here's our economics correspondent Richard Partington on today's inflation figures:
UK inflation unexpectedly fell further last month to the lowest level in more than a year, as lower airfares provided some relief for cash-strapped Britons.
The consumer price index dropped from 2.5% in March to 2.4%, according to the Office for National Statistics (ONS). Economists had expected the annual rate of growth in prices to remain unchanged.
Related: UK inflation falls unexpectedly to lowest level for a year
1.40pm BST
Back in the UK, new data has confirmed that London's housing market has come firmly off the boil.
Property prices in the capital have fallen by 0.7% in the last year - making London the only part of the UK with negative house price inflation.
Property experts in London said buyers are "sensing blood in the water" with sellers forced to cut prices steeply to ensure a sale.
Jonathan Hopper of Garrington Property Finders said: "London is paying a painfully high price for its stellar run of price rises, and a correction is now under way in several parts of the capital.
London is the only major region of the UK to see falling house prices over the past year. ONS figures: https://t.co/9yUOpfnG89 pic.twitter.com/RLuIyHefEw
UK average house price growth was 4.2%y/y according to ONS Land Registry. London still seeing average house price falls (-0.7%). Plenty of regional variation as per usual. Scotland with highest rate of growth (not so usual). Quite a gap between London & rest now. pic.twitter.com/Xs3Cf1h1Oc
1.23pm BST
Newsflash: Breaking away from UK inflation, US media conglomerate Comcast has just announced it is preparing an all-cash offer for most of Twenty-First Century Fox - Rupert Murdoch's media empire.
That's a fascinating development, because Murdoch has agreed to sell 21CF to Disney for $52.4bn.
BREAKING: Comcast says it is in the advanced stages of preparing all-cash bid for Fox assets https://t.co/qzDA61KjmD
Any offer for Fox would be all-cash and at a premium to the value of the current all-share offer from Disney.
12.39pm BST
Today's slide means the pound has now lost 10 whole cents against the US dollar since 16 April, when it was worth $1.43.
There are reasons why future inflation may move back up. In recent weeks, the price of oil has risen sharply and the value of the Pound has fallen again, both of which could drive up the costs of goods.
In addition, recent data showed that wage growth had overtaken inflation, putting more money into the pockets of consumers. In theory this could increase demand and push prices higher."
"Oil price rises have not yet fed through to the UK - but this could be just a matter of time. With a further 10% rise in oil in sterling terms over the last month, it seems unlikely that this restraint can last for long.
12.16pm BST
Could someone hand the pound a sponge and a towel?
Sterling has now shed a whole cent against the US dollar to $1.3328 (still a 5-month low).
12.15pm BST
Although the inflation rate dropped last month, it's important to note that the cost of living is still higher than a year ago.
Each of the main areas - food, transport, housing costs - cost more in April 2018 than April 2017, as this chart shows:
11.24am BST
The pound has dropped to fresh five-month lows against the US dollar, as the chances of an early UK interest rate rise drop sharply.
Sterling is now down almost a cent at $1.335, following the news that UK inflation dropped to 2.4% last month.
Pound hits its lowest level so far this year after Britain's inflation slows more than expected https://t.co/3A3cVqZgfD pic.twitter.com/oixMkr3ha5
"Prices of goods, including furnishing, household appliances, clothing and footwear, moderated in April. At the same time, the cost of services, including hotels and communication packages, were on the rise.
This is partially a reflection of the diminishing impact on import prices from the sharp depreciation of the pound following the EU referendum, and increasing domestic inflationary pressures as the labour market tightens further and spare capacity wanes.
10.43am BST
Professor Costas Milas of the University of Liverpool agrees that the case for the Bank of England raising interest rates in August is fading.
He explains:
The 2.4% CPI inflation reading for April is already (slightly) lower than the most likely outcome (the so called 'mode') of 2.43% predicted for the second quarter of 2018 by the MPC's Inflation Report only a few weeks earlier.
If CPI inflation falls further in May, they will most likely have to revise their inflation forecasts downwards which will obviously make the case for an August interest rate hike even weaker.
10.38am BST
Newsflash: Investors have slashed the chances of a UK interest rate hike in August to just a third:
(Bloomberg) MARKET IMPLIED PROBABILITY OF A BANK OF ENGLAND RATE HIKE BOEWATCH BY AUGUST FALLS TO A THIRD FROM NEARLY HALF EARLIER THIS WEEK
"Britain's next interest rate rise hasn't just been kicked into the long grass, it has been sent sailing right out of the park.
"With consumer inflation continuing to fall - even in the face of rising fuel prices - the Bank of England is running out of reasons to raise rates.
10.36am BST
Predictably, the government has welcomed today's decline in in inflation, while the opposition points out that real wages are still too low.
For the government, financial secretary to the Treasury Mel Stride says:
"Inflation falling and real wages on the rise means more money in people's pockets. We are helping families earn more and keep more of what they earn by cutting taxes for 31 million people and increasing the National Living Wage, worth an extra 2,000.
"We must continue to ensure people's pay outstrips inflation and build an economy that truly works for everyone.
"Inflation remains higher than the Bank of England's target, while working people are struggling with real earnings still lower than in 2010, following eight years of Tory economic failure.
The next Labour government will introduce a 10 per hour Real Living Wage to tackle the squeeze on wages, and build a high wage, high skill economy for the many, not the few."
10.32am BST
Today's report also shows the impact of Britain's new sugar tax.
"Inflation continued to slow in April, with air fares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices.
"Soft drink prices saw their biggest ever rise for this time of year, due to the introduction of the sugar tax. However, many retailers still haven't passed the impact of the tax onto shoppers.
10.23am BST
Martin Lane, managing editor of money.co.uk, has welcomed the drop in UK inflation to a 13-month low:
"The nation can breathe a small sigh of relief. Inflation has fallen, so the pounds in our pockets aren't being stretched quite as far.
The pressure on our wages is easing and the gap between inflation and wage growth has disappeared, easing the strain on our wallets.
"With inflation at a one year low of 2.4% and no interest rises yet it may seem like a great time to spend spend spend. However, there are still interest rate rises looming on the horizon, so it isn't the time for you to splash your cash just yet. Use the good times to prepare your finances for when they aren't so great.
Create a budget and spend 30 minutes looking at where you could make savings, from switching where you do your weekly shop to changing your energy supplier. Half an hour of research and admin could save you hundreds, if not thousands a year."
10.12am BST
Kevin Doran, chief investment officer at stockbroker AJ Bell, warns that the drop in inflation may not last.
"UK consumers will be glad to see average wage increases starting to outstrip inflation and for the spending power of the pound in their pocket pick up further.
"However, the recent weakness in the pound and the rising oil price are a concern and could quickly reverse the drop in inflation. The jump in the oil price has started to hit petrol pumps, pushing up costs for UK consumers and businesses alike. In addition, the weak pound will be driving up input costs for many UK companies which will ultimately filter through to UK consumers in the coming months.
10.10am BST
The drop in inflation in April suggests that real wages in the UK are still growing, at a modest pace.
The latest data shows that average basic pay in Britain (excluding bonuses) rose by 2.9% per year in the first quarter of 2018. Total pay (including bonuses) rose by 2.6%, or barely ahead of the cost of living.
9.59am BST
Why did the unusually early Easter helped to pull inflation down last month?
The timing of Easter in the middle of April 2017 contributed to air fares rising by 18.6% on the month whereas this year, Easter fell at the beginning of April before the price collection period and there was no price rise.
Instead, fares fell slightly, by 0.2%, between March and April.
9.51am BST
Core inflation, which strips out volatile items, has fallen to just 2.1% from 2.3% in March.
That's another sign of cooling inflationary pressures.
*U.K. APRIL CORE INFLATION RATE FALLS TO 2.1%; EST. 2.2%
9.44am BST
The pound has fallen to a new five-month low, as the City reacts to today's unexpectedly weak inflation report.
Sterling has shed three quarters of a cent against the US dollar to $1.3348, its lowest point since the end of December.
British pound adds to session losses as inflation comes in below expectations https://t.co/yl07wUpnxP pic.twitter.com/lYKU8xvuse
Fresh lows for 2018 for GBPUSD on inflation data. 1.3300 the next level in focus - has lost 1,000 points/10c versus US dollar over past 5 weeks. pic.twitter.com/pemPyYa3u5
UK inflation falls to 2.4%, lower than expected.
It's now fallen three months in a row, longest run of easing inflationary pressures in over three years.
Sterling falls to a low for the year of $1.3350.
Rate hike, anyone?
9.40am BST
Food and men's clothing prices helped to pull inflation down last month, alongside the impact of cheaper air fares.
The Office for National Statistics says:
Clothing and footwear also had a downward effect, with prices rising by 0.4% between March and April 2018 compared with a larger rise of 1.1% between the same two months a year earlier. The effect came mainly from men's clothing.
A smaller downward contribution came from food and non-alcoholic beverages. This was from a range of food products with the largest single effect from meat, where prices fell this year but rose a year ago, particularly for cooked ham. The downward contribution from food was partially offset by an upward effect from mineral waters, soft drinks and juices, where prices rose by 2.8% between March and April this year compared with a rise of 0.3% a year ago.
9.35am BST
Cheaper air fares helped to pull inflation down last month, and make up for higher petrol prices at the pumps.
The ONS says:
9.32am BST
Newsflash: Uk inflation has fallen to a new one-year.
The consumer prices index - the headline measure of inflation - rose by 2.4% in April, down from 2.5% in March.
9.28am BST
Stand By Your Desks! UK Inflation data up next and I will be looking at PPI in particular as the lower and higher crude oil price make up around 70% of it so we could see a surge. #CPI
9.14am BST
Newsflash: Growth across the eurozone has fallen to its lowest level in 18 months.
Data firm Markit reports that activity and new orders at eurozone companies is expanding at a slower rate this month, with a knock-on effect on confidence and job creation.
"The May PMI brought yet another set of disappointing survey results, though once again a note of caution is required when interpreting the findings. While prior months have seen various factors such as extreme weather, strikes, illness and the timing of Easter dampen growth, May saw reports of business being adversely affected by an unusually high number of public holidays.
Furthermore, despite the headline PMI dropping to an 18-month low, the survey remains at a level consistent with the eurozone economy growing at a reasonably solid rate of just over 0.4% in the second quarter.
#PMI's this morning. Just ouch! Surely don't look for June to take the next step in #ECB forward guidance. Generally, more than just a soft patch... #Markit comment says it all: "The survey also indicated that companies have become less optimistic about the outlook." pic.twitter.com/wAmwVLFUEq
9.00am BST
Those trade worries have dragged Britain's FTSE 100 away from yesterday's record high.
The blue-chip index is down almost 50 points at 7829, a drop of 0.6%.
#Stocks | It's starting to turn real ugly at the moment. - @ForexLive
Eurostoxx -0.9%
Germany DAX -1.2%
UK FTSE -0.5%
France CAC 40 -0.9%
Spain IBEX -1.2%
Italy MIB -1.3%
Portugal PSI -1.3%$DAX $FTSE $STOXX etc. cc. $DJIA $SPX $NDX $VIX pic.twitter.com/uzKvt6A60L
8.57am BST
European stock markets are in the red this morning, as anxiety over a potential trade war between America and China ripples through trading floors again.
Yesterday, president Trump declared that he's 'not satisfied' with the progress of trade talks with China.
FINANCIAL TIMES: Republicans launch revolt against Trump rescue of China's ZTE Corp #tomorrowspaperstoday pic.twitter.com/tmX2y9Pbvo
8.45am BST
Economist Rupert Seggins predicts that the rising oil price has pushed transport inflation up, while food price inflation has slowed:
1. UK inflation figures for April out today. Consensus is that inflation on the CPI measure will stay at 2.5%y/y, while core inflation is expected to fall from 2.3%y/y to 2.2%y/y as sterling works its way out of core price changes. pic.twitter.com/tOajpIvcs6
2. More fuel for the UK inflation fire. With oil price inflation picking up over the past month or so, we seem set for a rise in transport price inflation in April's figures. pic.twitter.com/V2Gn6eKmtj
3. Food price inflation has slowed of late, as sterling's pass through into input costs (and hence output prices) has eased. New figures at 9:30. pic.twitter.com/kC2DucpApq
8.12am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we discover if Britain's cost of living squeeze is getting any easier, when the latest UK inflation figures are released.
Related: Brexit vote has cost each UK household 900, says Mark Carney
Sterling rallied higher yesterday on the back of somewhat bullish remarks from BoE economist Gertjan Vlieghe that mentioned that he sees more rate hikes ahead but as we highlighted in our previous note the market doesn't seem to agree.
The rally to $1.35 was treated as an opportunity to go short on the pound and if today's inflation report prints soft as expected sterling could break below $1.34 en route to the $1.33 floor.
Falling fuel prices helped inflation fall more than expected in recent months but that effect looks to have reversed in April with pump prices rising 1.6% m/m. There is some offset from the timing of Easter.
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