UK inflation rate falls to 0.3%, but US prices jump –as it happened

Britain's inflation rate has fallen for the first time since last September, but US inflation figures put spotlight back on Fed rate decision

• Fed members: rates could rise in June, 2 to 3 hikes this year possible
• American monthly inflation hits three-year high
• UK inflation much weaker than expected
• Supply shortages pushing oil to nearly $50
• Introduction: UK and US inflation reports

5.46pm BST

Further rises in the oil price gave some support to stock markets in early trading, but with crude falling back during the course of the day, and renewed talk of US rate rises after stronger than expected data, the initial gains soon went into reverse.

A late rally in oil - Brent crude is now up 0.98% at $49.45 a barrel having fallen as low as $48.57 - has seen shares come off their worst levels, but it was still another unpredictable day for investors. The final scores showed:

5.42pm BST

Adding to the renewed expectation of a Federal Reserve interest rate hike next month with further rises to come:

Fed's Lockhart: Fed could take action in June, all meetings are live

Fed's Lockhart: Market expectations are more pessimistic than his own forecasts

Fed's Lockhart: Expects Q1 GDP to be revised up slightly, it was a weak quarter

Fed's Lockhart and Fed's Williams both posit that 2-3 hikes this year are possible

Fed's Williams : "gradual" means 2-3 rate hikes this year, 3-4 next year

Fed's Lockhart: Does not rule out a hike before the Brexit vote in June

Speaking at a POLITICO event this afternoon, Atlanta Fed president Dennis Lockhart and San Francisco Fed president John Williams would not rule out a June interest rate hike.

June meeting "certainly could be" a meeting where action is taken, said Lockhart. He pointed out that every meeting is live. "I wouldn't take it off the table," he said of a June interest rate hike, adding that "markets are more pessimistic than I am".

5.33pm BST

Dennis Lockhart and John C. Williams from the US Federal Reserve are currently discussing the US economy at a Politico event which you can watch here.

5.20pm BST

Eurogroup head Jeroen Dijsselbloem has said the IMF needs a political deal on Greek debt.

*DIJSSELBLOEM SAYS IMF REQUIRES POLITICAL DEAL ON GREEK DEBT

DIJSSELBLOEM SAYS TECHNICAL WORK BEING DONE ON GREEK DEBT #Greece

*DIJSSELBLOEM: IMPORTANT TO GET IMF INVOLVED IN GREEK PROGRAM #Greece

4.16pm BST

The best measure of inflation keeps rising. Ignore the wiggles in core CPI and core PCE. They're going up. pic.twitter.com/yEfYl4iIW9

3.17pm BST

The latest US data suggests a rate rise is likely before long, according to Harm Bandholz, chief US economist at UniCredit Research. He said:

The US economy is rebounding nicely in the second quarter. Most recent numbers for April have even exceeded our above-consensus expectations...

Federal Reserve officials across the board - i.e. hawks and doves - have highlighted repeatedly that every FOMC meeting is a live meeting and that the policy decision is completely data dependent. We understand that one (or even two) swallow(s) don't make a summer. But the latest round of data was as good as it gets. Second quarter 2016 GDP growth is now tracking at close to 3%, and the first quarter 2016 figure is bound to be revised up to 1% from the initially reported 0.5%. With inflation moving higher and financial markets much calmer, we will soon find out whether the emphasis of the data-dependency is more than a lip service. We continue to expect two to three rate hikes for this year, and are thus at odds with financial markets, which have barely priced in a single hike in 2016.

3.08pm BST

Back with Greece, and ahead of the latest weekend vote in the country's parliament on the latest reform proposals and next week's Eurogroup meeting, the International Monetary Fund reportedly wants its debt to be suspended until 2040.

Debt relief is one of the key issues the country's creditors have to resolve, and there have been concerns that the IMF would withdraw from the process if there was no satisfactory agreement. But the Wall Street Journal is now reporting:

The International Monetary Fund is pressing the eurozone to let Greece skip paying interest or principal on bailout loans until 2040, say officials familiar with the talks.

The IMF wants the loans to Greece to fall due gradually in the following decades, and as late as 2080, according to the IMF's proposal-a demand that goes far beyond what Greece's European creditors, particularly Germany, have said they are willing to do to help Greece regain its financial health.

The IMF is also at odds with eurozone authorities and Greece's government over how to ensure Athens hits its budget targets. But Greece is expected to pass the bulk of the fiscal measures creditors want from it by next week. The crucial fight is now among the creditors. "Greece is basically out of the picture," says another European official. "This is a dialogue between the IMF and the countries that really want the IMF."

2.54pm BST

The latest US data showing higher inflation and better than expected industrial production has added some impetus to the idea that the Federal Reserve may, after all, decide on a rate hike next month.

And that has been enough to send US markets lower in early trading. The Dow Jones Industrial Average is currently down 74 points or 0.44% after Monday's gains, while the S&P 500 and Nasdaq are also lower.

2.39pm BST

The recent recovery in oil prices comes amid interruptions in supply from Canada, Nigeria and elsewhere, as analysts at Goldman Sachs pointed to a dramatic cut in stockpiles.

But not everyone agrees. Ben Combes at independent economic group Llewellyn Consulting said:

Weekly fluctuations in [US] stocks by 4 or 5 million barrels need to be viewed in perspective. A broader sweep of history reveals that US oil stocks have been rising since 2008, and sharply so over the past year or so. Stocks are at their highest since the 1980s. One week's data - e.g. last week's 3 mb draw, perhaps reflecting recent interruptions in Canada and Nigeria - risks missing something of potential strategic significance: the supply glut seems persistent.

There are many potential reasons why stocks are trending upwards: weak final demand; stronger than expected supply; companies building inventories at 'low' prices in expectation of rising prices further out. But stocks seem unlikely to remain at such elevated levels indefinitely.

The main reason for the oil price halving in 2014, and again in 2015, was the basic global imbalance of supply and final demand: supply was, in certain months, running as much as 2m barrels a day in excess of final demand (the gap being global stock building). Such excess supply suggested that a rebalance, through the price mechanism, was inevitable. Many posit, not least given recent interruptions, that rebalancing has now run its course, and that prices stand to rise, perhaps markedly, hereafter. US stock levels, however, might well suggest otherwise. The process could be far from over.

If the market is yet to rebalance fully, the implications for the price of oil seem clear: the market may not have yet reached its low. Moreover, any rise in price might encourage further stock building, delaying rebalancing, and resulting eventually in a larger price correction.

2.24pm BST

More US data, showing better than expected industrial production in April.

Industrial output rose by 0.7% compared to forecasts of a 0.3% rise, with output from utilities bouncing back after a warmer than expected March.

2.15pm BST

Could the US Federal Reserve take the plunge and raise interest rates at next month's meeting?

Comments from Fed speakers over recent months have reiterated that June is a "live" month, and that two rate hikes look a reasonable prospect for 2016. But financial markets have been pricing in a far flatter curve for the Fed over the coming year. Today's inflation data is a clarion call for a market rethink on the Fed.

In our view, the Fed has been waiting for the perfect mix of benign financial conditions, inflation heading in the right direction, and some evidence that real activity is picking up after a very soft first quarter. And although the latter condition is still debatable, decent retail sales data released last week certainly puts 2Q16 on a firmer footing as far as activity is concerned. This better run of activity data now needs to be maintained through to the June FOMC meeting, which is not by any means a given, But a June rate hike cannot be ruled out, and we will be looking at our house forecast for a 3Q16 hike as data continues to come in, to see if we need to bring this forward to June.

According to the Fed funds futures there's just around a 4 percent chance of an increase in June. Nevertheless, there remains a view that the Fed could still raise rates twice this year. However, that would suggest a move in September which is dangerously close to the Presidential Election.

It seems reasonable to assume that the Fed wouldn't want to shift rates in either direction before the election. If it did, then it runs the considerable danger of being labelled partisan - particularly as this is shaping up to be a particularly vicious contest.

1.58pm BST

Today's inflation figures also include bad news for American workers.

Real average hourly earnings actually shrank by 0.1%, once you adjust for the rising cost of living.

US real average hourly earnings fall in April, first fall since June last year: https://t.co/zos8dbe7yB pic.twitter.com/6HLn3JjKze

1.51pm BST

This jump in US inflation is going to reignite talk about another hike in US interest rates....

US CPI highest in over 3 years... over to you Yellen

Inflation. Not dead.

US inflation has hit its highest monthly level since February 2013 https://t.co/SW3eOqzT0c pic.twitter.com/vbuqZG624j

1.37pm BST

Breaking: Prices in America have risen at their fastest rate in three years.

BREAKING: US Consumer Price Index rose 0.4% in April vs. 0.3% increase expected https://t.co/XhunFpquVj

1.22pm BST

Our economics editor, Larry Elliott, reckons the cost of living in the UK will remain subdued through this year:

The assumption among many City economists is that inflation will rise steadily in the second half of the year, putting interest rate increases from the Bank of England back on the agenda. They expect an unwinding of the sharp fall in energy prices in late 2015 coupled with a rebound in activity once the threat of Brexit is out of the way to nudge the monetary policy committee into action.

These forecasts should be taken with a pinch of salt. Inflation is low and the economy was weakening even before the government announced the date of the referendum in late February. There will probably be a bit of a bounce in the third quarter if, as seems likely, the decision on 23 June is to stay in the EU. But there is more chance of the economy stalling than there is of a boom. That will keep inflationary pressure in check and should make the Bank cautious about raising rates.

Related: Sluggish UK economy likely to hold back inflation

1.05pm BST

The pressure of smashing through the $50 per barrel mark for the first time this year has proved too much for the oil price.

This morning's rally has fizzled out, and Brent crude is now trading at just $48.74 per barrel.

WTI crude prices went charging past $48 a barrel this morning. Then came the smack-down. https://t.co/e1hDUTfLZL pic.twitter.com/qMt340s68Y

"I expect prices to take a shot at $50. The outages in Canada and Nigeria alone are probably enough to leave the global oil market undersupplied at present."

12.39pm BST

Falling inflation isn't good news for savers, who continue to press their noses against the windows of the Bank of England in the vain hope of seeing a rate rise.

With the run-up to the EU referendum contributing to increasing fears about the state of the global economy, the last thing we want is to be flirting with the term 'noflation' again. Indeed, this news reinforces the view that a rise in interest rates is not going to happen this year.

Even though we have witnessed a rising oil price in recent months, the Bank of England's 2% inflation target seems a long way off just now and this will only make Mark Carney sit tight and make us wait yet again on interest rates.

11.57am BST

Here's our news story about the 9% jump in house prices in March:

Stamp duty rush boosts March house prices, says ONS https://t.co/2AVJtyAbBA

11.47am BST

The pound has been hit by the news that Britain's inflation rate had fallen from 0.5% to just 0.3%.

After a strong start to the day, sterling fell back to $1.448 when the unexpectedly weak consumer price data arrived.

UK inflation is stagnating with a disappointingly low report causing an immediate drop in the value of the Pound. Forecasts ahead of 'CPI Tuesday' ranged from about 0.7% down to 0.3%, so today's 0.3% UK inflation release is right at the bottom of this range. Whilst not a game-changer, this data will be a real blow for the hawkish members of the Bank of England favouring future interest rate hikes.

11.28am BST

Core inflation, which strips out volatile measures such as energy and food, has also fallen - from 1.5% to 1.2%.

That suggests that underlying price pressures are still subdued - which is frankly excellent news for consumers.

The large falls in the headline rate since 2014 are largely due to cheaper goods, which account for 52% of the weight in the headline index. Low inflation has helped boost real incomes during a time when nominal wage gains have been unusually soft relative to the level of unemployment in the economy. And given that household consumption has been growing faster than overall GDP, there is little evidence that low inflation has led households to postpone spending amid expectations of lower prices in the future.

Whilst low inflation might give the inflation targeting Bank of England a headache, it is mostly a welcome boost for UK households and the economy overall.

10.48am BST

The Federation of Small Businesses and the British Chambers of Commerce have both issued statements urging the Bank of England to resist raising interest rates.

BCC chief economist David Kern says:

While the Bank of England's current monetary policy is conducive to maintaining stability, boosting business confidence will require much greater efforts on the part of the government to support growth at a time when the economy faces many headwinds.

10.39am BST

The TUC, which represents Britain's unionised workers, doesn't share the Treasury's happiness about the drop in inflation.

TUC General Secretary Frances O'Grady argues:

The UK's continuing low inflation is a sign that the economy still lacks the demand needed to get back to full strength. Wage growth remains too weak and we do not have the level of public investment needed to secure stronger growth.

With the UK economy slowing down, the government cannot continue to stand by. We need investment in skills, infrastructure and public services to promote growth for the long term.

10.17am BST

The Office for National Statistics doesn't suggest that the drop in inflation is due to uncertainty over next month's EU referendum.

Today's inflation figure continues the trend we've seen over the past year. Pay is growing faster than prices, boosting families' spending power.

Last week the Bank of England's Monetary Policy Committee warned that a vote to leave the EU would put this all at risk by hitting GDP and increasing inflation. As the Chancellor has said this would create a lose-lose situation for our economy.

10.12am BST

UK CPI: big price falls for meat, wine, second hand cars, books and tvs. Price gains for tobacco, education, insurance, culture, newspapers

10.03am BST

Rob Weaver, director of investments at property crowdfunding platform Property Partner, blames George Osborne's tax rises for the 9% surge in house prices in March.

With prospective private landlords firmly in the Chancellor's cross hairs, the rush by buy-to-let investors turned into an unavoidable stampede in the final month before the stamp duty increase.

The hefty 3% hike in upfront tax bills from April this year ramped up activity to beat the deadline and in turn pushed house prices up, temporarily at least.

9.51am BST

There's no sign of deflation in the UK housing sector, where new data shows prices surging again.

Eeek! UK ONS: UK house prices increased by 9.0% in the year to March 2016 Meanwhile the Bank of England is "vigilant" #BoE #GBP

9.47am BST

So, is Britain heading back to deflation?

Nick Dixon, investment director at Aegon UK, argues not:

While inflation was weak in April, we may be closer than forecasts indicate to the inflection point when inflation starts to accelerate. A combination of rising energy costs, higher US rates, and lower sterling could bring inflation forward and trigger rising interest rates before the end of 2016.

9.43am BST

This chart confirms that transport costs and clothing pegged back the cost of living last month:

9.35am BST

UK CPI inflation dips to 0.3% due to unwinding of the Easter effect on air fares and clothing price falls #GBP #BoE

9.33am BST

Falls in air fares and prices for clothing, vehicles and social housing rent were the main contributors to the drop in the inflation rate, the Office for National Statistics says.

Air fares had risen sharply last month, because Easter was particularly early this year.

These downward pressures were partially offset by rising prices for motor fuels and for certain recreational goods and cultural services, and by food prices, which were unchanged between March and April 2016, having fallen between the same two months a year ago.

9.31am BST

Breaking: The UK inflation rate has fallen, for the first time since last September.

Confounding our expectations, the Consumer Prices Index only rose by 0.3% year-on-year in April -- dashing expectations of a 0.5% reading.

9.19am BST

There's a significant development in the ongoing Greek drama.

The IMF wants the eurozone to grant Athens almost 25 years of debt relief, in return for continuing to support the Greek bailout programme.

The International Monetary Fund is pressing the eurozone to let Greece skip paying interest or principal on bailout loans until 2040, say officials familiar with the talks.

The IMF wants the loans to Greece to fall due gradually in the following decades, and as late as 2080, according to the IMF's proposal.

#Greece's 10y yields drop to 7.57% as IMF pressing Eurozone to let Greece skip paying interest on loans until 2040. pic.twitter.com/qUVCk6TAgF

IMF proposals for Greece: 'let's make sure we are all long retired when it next becomes a problem...'

The only thing that is not being taxed is the air we breathe.

Related: Tax hikes threaten to brew up a storm for Greece's coffee drinkers

8.53am BST

The Telegraph's Ashley Armstrong has a couple of corking stories this morning.

She's learned that Sports Direct boss Mike Ashley, already reeling from Newcastle's relegation, has finally agreed to appear before a parliamentary committee to discuss working conditions at his company.

Exclusive: Mike Ashley agrees to appear for a Westminster grilling by MPs, with a condition https://t.co/koiYI6q9Pc pic.twitter.com/54Ge6i9ABN

Administrators at Duff & Phelps are understood to be "bullish" about selling BHS as a going concern by the end of the week and have told suitors they must pump in cash, take on all the shops and also the chain's debt liabilities.

And ICYMI - Scoop!John Hargreaves, Matalan founder, working on a #BHS rescue bid ahead of today's offer deadline https://t.co/FdH16CEAZW

8.43am BST

Britain's competition authority is under fire this morning, after announcing its new proposals to shake up the banking sector.

Although the CMA is proposing overdraft caps, and new measures to help customers switch, campaigners are unhappy that it isn't challenging the dominance of the big four banks.

Costs of overdrafts to fall as part of UK banks overhaul https://t.co/fPDwYA5npj

8.33am BST

European stock markets are rising in early trading.

The FTSE 100 has jumped by 46 points to 0.7% to 6198, the highest level since 3 May.

A positive finish both the US and Asia, plus the fact that oil prices continue to march higher, have combined to ensure London's FTSE-100 kicks off Tuesday's session by extending yesterday's late gains

8.15am BST

Sam Hill of Royal Bank of Canada reckons the UK inflation rate will remain at 0.5% in April, matching the previous month's reading.

Although we look for some reversal in airfares after the surge last month, offsetting this there is also the higher petrol price and a number of other duty and government policy changes taking effect at the start of the new financial year, such as higher dental and prescription charges.

8.04am BST

Oil is continuing its charge towards the giddy heights of $50 per barrel this morning.

....benefitting from a bullish outlook upgrade from Goldman Sachs as well as more supply disruptions stemming from equipment failure and political squabbles in places like Nigeria and Venezuela - both major producing nations.

7.37am BST

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

A few months ago, many commentators were fretting about the threat of deflation. But with energy prices picking up, those fears look increasingly ill-founded.

Many investors seem to hope this 'Goldilocks' economy will persist, whereby there is enough growth and inflation to keep things moving but not enough to persuade the FOMC to hike interest rates.

Yesterday we heard from the Richmond Fed's Jeffrey Lacker who stated that there remained a strong case for a June rate rise, however he is not on the voting committee this year, unlike the Boston Fed's Eric Rosengren who is, and who has a history of leaning to the dovish side.

His comments last week about the markets potentially mispricing the timing of a Fed move on rates appear to suggest he is leaning towards a rate rise in the next few months.

So CMA review on banking is out: proposes requiring banks to set a monthly maximum charge for unarranged overdrafts on current accounts.

CMA claims its proposals for the banking sector will save customers 1bn over five years