Real wage squeeze deepens as UK inflation hits six-month high of 2.7% – as it happened

The cost of living in Britain has jumped, as consumers pay more for clothing and transport.

• Latest: Inflation now rising faster than total pay
• Expert: It's a body-blow to families
• BREAKING: UK inflation jumps to 2.7% in August
• Pound jumps over $1.32
• Cost of living rising at fastest pace since February

Earlier:

• Chinese premier: Trade wars aren't the answer
• Li: We'll keep opening China up

2.58pm BST

Time for a recap:

British workers are facing a renewed wage squeeze after inflation jumped unexpectedly to a six-month high.

"The pay squeeze is tightening again, but the government is doing nothing to get wages rising faster.

"The minimum wage should be put up to 10 an hour as quickly as possible. And we need a National Investment Bank to target communities that are most in need of new industry and better jobs.

"This was a nasty inflation shock and, as we have said before, shows that a gentle glide back to the 2% target cannot be taken for granted.

"Looking at the components of RPI (up 3.5%), which is the underlying index for linkers, it appears that housing, leisure and travel costs have driven the stronger than expected inflation print. Indeed, the motorist continues to be clobbered by high petrol prices, which are up nearly 12% year-on-year. We would not read too much into the uptick in clothing and footwear, as this is a volatile component, and the trend here is not far from the four-month average.

Related: UK households face squeeze after surprise inflation jump to 2.7%

"One-way devaluation will do more harm than good to China's economy. China will by no means stimulate exports by devaluing the yuan."

Related: Tesco opens discount store Jack's to take on Lidl and Aldi

2.40pm BST

Exactly ten years ago, Wall Street was suffering a dramatic plunge.

Major bank share were slumping through the floor as the aftermath of the Lehman Brothers collapse ripped through the markets.

Brutal opening on Wall Street: Dow Jones drops 2% within mii..."utes of opening. Banks leading, but GE (-6%), US Airways (-7.4%) hit as finance infects economy.

CNBC is running Morgan Stanley and Goldman's stock prices at the top of the screen, called the "death watch". MS down 27%, Goldman down 20%.

NY Fed President Geithner takes a call from Lloyd Blankfein, CEO of Goldman Sachs. Blankfein says he's doing fine, but his voice is quavering. Geithner calls back afterwards, tells Blankfein not to speak to anyone. "If anyone hears your voice, you'll scare the shit out of them."

1.55pm BST

Far be it from me to point the finger when it comes to spelling mistakes, but this is quite impressive:

Oops this special livery won't last long! She's going back to the shop!
(Source: HKADB) pic.twitter.com/20SRQpKXET

Related: Cathay Pacific spells its name wrong on side of plane

1.52pm BST

In other news, the CEO of Denmark's Danske Bank quit today over a massive money-laundering scandal.

Thomas Borgen quit as Danske reported that some a200bn in questionable money flowed through its Estonian branch, a jaw-dropping amount.

BREAKING: Explosive report on money laundering at Danske Bank. Damning conclusions for management, regulators and police in Denmark, Estonia and the EU who all did nothing for 8 years while hundreds of billions flowed through. Here is the link. https://t.co/U3oHCcOw6G

BREAKING: The suspicious transaction situation was so bad at Danske Bank's Estonian branch that it's US correspondent bank terminated the relationship on anti money laundering grounds. Yet the Danish management did nothing until 2015 pic.twitter.com/EkY5QR4Efs

BREAKING: From Danske Bank money laundering report, $200 billion representing 9.5 million transactions moved trough the Estonian branche's 'non resident' portfolio pic.twitter.com/hAxVCg8ZZ3

1.03pm BST

NIESR, the economic think tank, report that inflationary pressures were strongest in London last month, and weakest in Yorkshire.

It says:

At the regional level, underlying inflation was highest in London at 1.4 per cent and lowest in Yorkshire and the Humber at 0.5 per cent in the year to August 2018

#CPI #inflation rose by 0.2% to 2.7% in the year to August 2018 - Our new #analysis suggest that this increase was driven by relatively large increases in a small number of #items - Read here in full: https://t.co/FaX2PJvmRi

12.19pm BST

Ouch! The pound has just shed all its earlier gains and slumped into the red.

Sterling has dropped back to $1.312, from the eight-week high of $1.32 after this morning's inflation shock.

12pm Times

May rejects Barnier improved Irish brexit offerhttps://t.co/C3ZpFgXUml

Theresa May will today reject Michel Barnier's "improved" offer to solve the Irish border issue, warning that it still violates Britain's red lines.

The EU's chief negotiator said yesterday that the EU was preparing to table a new "backstop" proposal that he hoped the government would be able to support.

MAY IS SAID TO REJECT BARNIER IMPROVED IRISH BREXIT OFFER:TIMES pic.twitter.com/NnWwB7eKAB

Related: Brexit: May says second referendum would 'destroy trust in politicians' - Politics live

12.11pm BST

Back on UK inflation...and Capital Economics reckon the cost of living squeeze might ease by next summer:

Defying expectations for a fall, CPI inflation jumped to 2.7% August, from 2.5% in July. However, spikes in the volatile theatre, airfare and clothing components should be temporary. We still expect inflation to gradually ease and reach the BoE's 2% target by this time next year. pic.twitter.com/qFcy6LzZXR

12.03pm BST

In other retail news, shares in DIY chain Kingfisher have slumped by 4% to the bottom of the FTSE 100 leaderboard after posting its latest financial results.

"Transformation on this scale is tough, and there are challenges that we're working through. There is still much to do to improve our performance in France and to remove inefficiencies within the business as we continue to transform at pace.

I am confident that we have the right plan and the opportunity for Kingfisher is significant.

11.14am BST

Callum Stayton, retail sector specialist at management consultancy Vendigital, reckons Tesco could make a success of its new discount arm:

"The timing is right for Jack's as market share at the discount end of the market is still growing at a rate of 10 percent per year, so there is still a lot to play for. Set up costs will also be quite low as Tesco plans to scoop up sites that have been vacant for a long time or redevelop some of its less-successful Metro stores.

"Following its takeover of Booker, Tesco has first-hand experience of sourcing and supplying large volumes of goods and this will stand it in good stead when rolling out Jack's, which is expected to stock higher volumes of fewer goods than its mainstream stores."

11.10am BST

With inflation rearing up, more UK consumers might be interested in Tesco's new discount supermarket chain.

It's (union) Jack's... pic.twitter.com/mpAfQdHBvQ

The first store has been unveiled by the Tesco chief executive, Dave Lewis, in the small Cambridgeshire town of Chatteris. The public will get their first chance to shop at Jack's on Thursday morning when the store opens, along with a second outlet in Immingham, Lincolnshire.

The new chain is named after Jack Cohen, who founded Tesco 99 years ago, earning the nickname "Slasher Jack" for his "pile-it-high, sell-it-cheap" approach to retailing.

Not convinced Jack's is much cheaper than @Tesco. 2 Cornflakes = same; 3.35 beef mince vs 3.40 at Tesco; milk 1.09 = same pic.twitter.com/JYLBYmMoFG

Jack's own label baked beans 420g 29p compared to Tesco own label 32p but hang on at Sainsbury's you can get Basics beans for.. 25p.. only 400g though..

Related: Tesco opens discount store Jack's to take on Lidl and Aldi

10.51am BST

Three factors drove UK inflation higher last month.

In Transport, the cost of travelling by air or sea rose in August. Petrol prices rose by 1.4p per litre, while diesel rose by 1.2p per litre.

10.22am BST

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), also fears that a no-deal Brexit could shove inflation higher.

"Inflation surprisingly rose for the second successive month in August, largely wiping out the recent recovery in real wage growth and emphasising the continued squeeze on consumers.

"The strong growth in producer prices indicates that inflationary pressures further down the supply chain remain significant and could lift inflation higher in the coming months. However, the upward pressure on prices remains transitory, and inflation should resume its ease back towards target once the impact of the recent increase in oil prices drops out of the calculation.

10.10am BST

More bad news for households: inflation could keep rising in the months ahead, especially if Brexit talks flounder (weakening the pound).

If so, that could mean inflation keeps rising faster than total pay.

"Today's inflation figures are a body blow to UK households after the latest CPI figures showed that price rises jumped 2.7% in August, driven largely by increased costs for recreational and cultural goods and services, transport services and clothing. The latest figures mean that wage growth including bonuses (2.6%) has once again fallen behind inflation and means that we are all getting progressively poorer again.

"To rub salt in the wounds there's also a distinct possibility that inflation could continue to climb as the oil price has recently crept up to over $80 a barrel, meaning we are likely to see prices at the petrol pumps start ticking up.

10.04am BST

City economist Simon French of Panmure Gordon says the slump in the pound in August (it hit a 14-month low) drove inflation up:

Broad-based increase in UK consumer prices with CPI at 2.7% YoY in August meaning real wage growth remained largely flat over the summer months. Secondary pick-up in inflation led by higher energy costs and weaker Pound.

Transport costs just 15% of the CPI basket but now contributing 37% to the headline UK CPI. Set to moderate later in 2018 but highly sensitive to forward path $GBP and spot energy prices. pic.twitter.com/9QEPrWyRQa

9.57am BST

Economist Ulrik Bie says rising inflation is pushing more UK people into debt, because wages aren't rising fast enough.

UK inflation increased to 2.7% in August; the second month of increase after a period of decline. Hence, gains in real wages remain illusive, and growth in private consumption is thus based on lower savings and more debt #macrobond pic.twitter.com/6CBvFyOo7I

9.55am BST

The jump in UK inflation to 2.7% is bad news for households.

Average basic pay is only rising by 2.9% per year at present, meaning pay rises are only just keeping ahead of the cost of living.

9.47am BST

9.43am BST

The Office for National Statistics, Head of Inflation Mike Hardie, says:

"Consumers paid more for theatre shows, sea fares and new season autumn clothing last month. However, mobile phone charges, and furniture and household goods had a downward effect on inflation.

"UK house prices continued to grow but at their lowest annual rate for five years, driven again by a fall in London. The housing market saw strong growth in the North West, South West and West Midlands."

9.43am BST

Although prices are rising faster in the shops, UK house price inflation has fallen.

Average house prices in the UK rose by 3.1% in the year to July 2018, the Office for National Statistics reports, down from 3.2% in June.

9.39am BST

At 2.7%, UK inflation is now at its highest level in six months.

Rising transport, clothing and recreational goods prices drove the cost of living higher in August, the Office for National Statistics reports.

9.35am BST

Sterling has jumped to an eight-week high against the US dollar.

It's trading over $1.32 for the first time since late-July.

#Pound at day high vs the dollar. UK August inflation rate rises to 2.7% (est. 2.4%) pic.twitter.com/lku1UONru3

9.31am BST

NEWSFLASH: Britain's inflation rate has jumped to 2.7% in August, putting a squeeze on households again.

That's up from 2.5% in July, and dashes expectations that the consumer prices index would drop to 2.4%.

9.28am BST

Over in Tallinn, Bank of England chief economist Andy Haldane is giving a speech to mark the 100th Anniversary of the Bank of Estonia.

It was only a generation ago that, when asked by Mervyn King for a one-word piece of advice, Paul Volcker replied "mystique". To that point, opacity rather than transparency coursed through central bankers' veins. That bloodline ran from Montagu Norman a century ago ("never explain, never apologise") through to Alan Greenspan a generation ago ("I've learned to mumble with great incoherence").

As the name suggests, and like our recent public communications efforts, these materials describe the economy and finance in terms which are personal and relatable to young people's lives. Why does the economy and finance matter to me? And how do my decisions in turn affect the economy?

We set ourselves a target of reaching 400 state schools with econoME during the course of this year. So far since launch in April, over 1,000 schools have downloaded the materials, conceivably covering around 90,000 pupils. 52 This demonstrates the potential pent-up demand for school materials on economic and financial issues.

9.03am BST

China is often accused of discriminating against foreign companies on its turf, in favour of local (sometime state-controlled) firms instead.

Chinese premier Li Keqiang, though, is promising to give foreign investors equal treatment.

"Chinese and foreign companies can compete on a level playing field in this big market. That gives better vitality to the Chinese economy," Mr Li said at the World Economic Forum, triggering prolonged applause from an audience that included high-tech manufacturers from overseas and small businesses from provincial cities.

China, he said, would cut taxes and unlock financing for the country's private businesses. "The pool is full of water, the challenge is to unblock the channels," he said, adding that Beijing would not devalue the renminbi but keep its currency "at an adaptive and equilibrium level".

8.52am BST

European stock markets have hit a two-week high in early trading.

In London, the FTSE 100 is 17 points higher at 7317 (+0.25%).

Though China announcing tariffs on $60 billion in US imports isn't great news, it is not as bad as it could have been. The response was also tempered by the country's deputy leader Li Keqiang urging that the 'basic principles' of free trade are held up, while promising that China won't weaponise its currency (something it has already been accused of doing by Trump).

8.32am BST

Premier Li's call for a multilateral solution to the trade dispute is going down well in the markets.

The Chinese yuan has been under the hammer due to two reasons; sluggish domestic growth and impending trade war.

China has been blamed by the U.S. for devaluing its currency to gain a competitive edge. Over in Asia, we have seen that traders have felt more comfortable about China's recent comments on currency devaluation and this has bolstered the Asian equity market.

8.29am BST

Importantly, premier Li has also pledged that China won't weaponise its currency in its tussle with Donald Trump.

In his keynote speech in Tianjin, Li promise that Beijing hadn't been deliberately weakening the yuan - and wouldn't do so, either.

"Recent fluctuations in the renminbi exchange rate have been seen as an intentional measure, but that isn't true,.

"One-way devaluation will do more harm than good to China's economy. China will by no means stimulate exports by devaluing the yuan."

8.01am BST

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

Related: China hits back at US with $60bn of new tariffs

It is essential that we uphold the basic principles of multilateralism and free trade....

No unilateralism will offer a viable solution."

Chinese Premier Li on global trade https://t.co/vlkiKTwqRe

Asia stocks extending low quality rally. 'Markets behaving as if trade war overhang has been removed after details were released on $200bn of tariffs. Positioning stretched,' JPM says. Nikkei at 8mth high. US 10y yields steady >3% threshold. Dollar a tad lower. Bitcoin at $6.3k. pic.twitter.com/ikjbsPD0K7

Will there be any Tesco branding at all? Or will it be solely these faux-farms, odd sub-brands that Tesco has been developing? We shall see pic.twitter.com/8yMl3be0ZO

The biggest question re Jacks (apart from whether it will have an apostrophe, as it should) is: if it's a great, decent-quality rival to Aldi/Lidl, why would you want to go back to shopping at Tesco? Won't it highlight that Tesco ain't that cheap anymore?