Brexit uncertainty hits UK manufacturing; London house prices drop again - business live

Factory growth has stalled in Britain, while house prices in the capital remain under pressure

• Latest: UK manufacturing stumbles
• UK inflation drops back to 2%
• Air fares fell in May after Easter price hikes
• London house prices down 1.2% in April
• House prices up in East Midlands, down in South East

2.35pm BST

Time for a catch-up

UK inflation has fallen for the first time in four months, back to the Bank of England's 2% target. Households benefitted from a drop in air fares in May, as prices returned to normal following Easter hikes.

2.33pm BST

Trading has started cautiously on Wall Street.

The Dow Jones industrial average has gained just 0.16%, up 39 points at 26,504, led by tech companies and financial groups.

AT THE OPEN:
- Dow up 0.16%
- Nasdaq up 0.19%
- S&P up 0.16%
- #StockoftheDay $ADBE up 3.89%. Read the latest on @RealMoney: https://t.co/YZ4tEhd8u8 pic.twitter.com/k6zWEj1Fby

2.27pm BST

Pharmaceutical bosses have given MPs a fresh warning against risking a no-deal Brexit this autumn - saying it would create medicine shortages within weeks...

Related: Vital medicine supplies at risk if UK crashes out of EU, MPs warned

2.08pm BST

Over in the eurozone, Italy's government is refusing to roll over in its long-running budget battle with Brussels.

Italy will try to change the European Union's fiscal rules to reduce the role of "structural" budget deficits and to allow more room for investments, the government said on Wednesday, backing a parliamentary resolution by the ruling coalition.

The resolution was tabled by the right-wing League and the anti-establishment 5-Star Movement in the Chamber of Deputies ahead of an EU summit this week.

2.04pm BST

Newsflash: Inflation in Canada has hit a seven-month high, in contrast to the small slowdown in the UK.

The Canadian consumer prices index jumped to 2.4% per year in May up from 2% in April. More expensive food and transport costs pushed up the cost of living.

CAD CPI above expectations 2.4% (Exp. 2.1%)
- BoC preferred measure at 2.1% (Prev. 1.9%)
- Citi Surprise Index hovering at best levels in 9yrs pic.twitter.com/9eYBsD6Kkt

12.53pm BST

Here's a good thread from the Resolution Foundation on UK house prices...and how buying in London is still simply unaffordable for many.....

New @ONS House Price Statistics out this morning: UK house price growth has slowed substantially over the past two years. From 8.3% in March 2016 (a recent peak) to 1.4% in April 2019 (most recent data). pic.twitter.com/xke44jVvoa

Despite the recent slowdown in house price growth, house prices have grown faster than earnings in recent years. Since April 2011, house prices have grown by 36% while earnings have grown by 13%. pic.twitter.com/bV4lT46HJV

London house prices are lower today than two years ago. The average London house price is now 472,000, down from a peak of 489,000 in July 2017. pic.twitter.com/ELyab2pLq0

But despite being lower than a year ago, house prices in the capital have increased six times faster than earnings since early 2011 - meaning that home ownership in London is far out of reach for many families. pic.twitter.com/rncBhQWzPQ

12.07pm BST

In other news, Britain's factories are stalling as Brexit weighs on the economy.

The CBI's latest industrial trends showed that manufacturing output slowed to a halt in the three months to June, the slowest growth since April 2016.

"The bringing forward of planned closures to car manufacturing plants had a real impact and led to manufacturing output grinding to a halt. While the picture elsewhere in the sector was more benign, total orders weakened once again revealing some underlying causes for concern.

"There's clear evidence that Brexit uncertainty is really biting, with our surveys showing volatility in both stocks and output in recent months. Firms are desperate to see an end to the current impasse - that means securing a Brexit deal that can not only command the support of parliament and the EU, but prioritises the protection of jobs and the economy."

@CBI_Economics Industrial Trade Survey showed a sharp decline in motor vehicle production puts brakes on manufacturing output. The latest @SMMT data indicates that UK car production fell by 44.5% in April. YTD car production is over 22% lower y-o-y. pic.twitter.com/8iukZqYXBk

CBI says UK manufacturing output for the three months to June flat. Rises in ten industries completely offset by the worst fall in car manufacturing output since the financial crisis. #Brexit uncertainty biting.

Weak June #CBI #industrial trends survey points to poor end to a very difficult Q2 for #manufacturers. Orders balance at 32-month low in June, seemingly primarily due to poor domestic demand. Output balance for past 3 months flat (weakest since Apr 2016) https://t.co/vQLuqzhPv6

11.39am BST

Despite falling over the last year, London house prices have still more than doubled over the last 15 years.

Housing expert Noble Francis of the Construction Products Association points out that low interest rates have helped push up mortgage affordability -- which puts asking prices beyond the reach of many younger Londoners.

The ONS/Land Registry average London house price in April was 1.2% lower than a year ago but, for all the concern about recent price falls, it was still 57.9% higher than at the pre-crisis peak & still more than double (115% higher) than in January 2004.#ukhousing #London pic.twitter.com/j6Tc1KHiHu

The updated chart of London house prices & UK mortgage rates between January 2004 & April 2019. Must see if there's a way of putting Value of Quantitative Easing on there as well, perhaps as a background image...#ukhousing #London pic.twitter.com/OUpPIaqUrT

11.29am BST

Here's my colleague Philip Inman on the UK inflation report:

A fall in transport costs and cheaper clothing brought to an end the recent rise in inflation that threatened to push the Bank of England to increase interest rates.

Energy costs, which spiked in April, and a price war in the car industry following a slump in sales over the past year also helped to bring down the consumer prices index (CPI) from 2.1% in April to 2% in May. Transport costs fell by 3.8% overall between April and May this year, led by falling airfares.

Related: Car price war and falling airfares cool UK inflation

11.02am BST

Underlying UK inflation, which strips out volatile items such as air fares, rose in May -- even though the headline rate of CPI dropped a little.

That's significant, as it suggests the cost of living will keep rising in the coming months.

Our analysis of more than 130,000 goods and services included in the basket, however, suggests that the fall is due to a small number of large price changes, such as air fares.

Our measure of underlying inflation, which excludes extreme price movements, picked up by 0.3 percentage points at the national level. Underlying inflation also increased in every region of the United Kingdom, rising most in the West Midlands, the North and London.

10.39am BST

UK inflation is going to hover around 2% in the coming months, reckons Josie Dent, senior economist at the CEBR thinktank.

She says:

Inflation fell back to the Bank of England's target rate this morning, as the Monetary Policy Committee meets today to make a final decision on interest rates [announced at noon on Thursday].

Looking ahead, Cebr forecasts CPIH inflation will average 2.0% in 2019, as upward pressures from higher energy prices and the strong labour market are offset by weak demand, demonstrated by the negative economic growth recorded in April."

10.22am BST

The confusion and uncertainty over Britain's exit from the European Union is hurting London's housing market.

Jonathan Hopper, managing director of Garrington Property Finders, says the Brexit extension has left the capital's property market struggling:

"After spending the run up to what was due to be Brexit Day in low gear, the property market struggled to find the gas pedal in April - with the national picture being dragged down by sharp price falls in London and the Southeast.

"Modest though this year's Spring bounce is [+1.4% in April], the stagnation of the first quarter has been replaced by a cautious equilibrium. Sellers are being coaxed back to the market by the gradual return of stable demand, and activity levels are brisk.

10.14am BST

More expert reaction:

Decent news for #BoE and #consumers as #consumer #price #inflation dips to 2.0% in May from 2019-high of 2.1% in April, helped by sharp monthly drop in air fares as impact of later Easter this year drops out. Core inflation edged back to 1.7% in May from 1.8% in April

UK CPI inflation of 2%y/y in May, down from April's 2.1%y/y. Air fares (Easter timing) and car prices the biggest contributors to the 0.1% fall. Some offset from prices of toys & games, furniture and accomodation. Core inflation (ex. food & fuel) down from 1.8%y/y to 1.7%y/y. pic.twitter.com/RUNqQHkdzi

Average house price changes where you live. London & the S.East are the only two regions with falling house prices in April. Wales' figure should be interpreted with caution, as the growth rate spiked to 6.7%y/y from 3.9%y/y in March. pic.twitter.com/jtKU3kiqtq

"Today's house price release from the ONS and Land Registry shows house prices increased by 1.4% in the year to April 2019, down from 1.6% in March. The price of a typical UK house is now 229,000, down from a peak of 232,000 in August 2018."

"The house price growth story is split between the South East and the rest of the country."

10.11am BST

Today's drop in inflation means there's no chance of the Bank of England raising interest rates on Thursday, say City economists.

Tom Stevenson, investment director for Personal Investing at Fidelity International, explains:

The prospect of low rates for the foreseeable future, together with last week's above-inflation increase in average earnings, means UK households should be feeling more relaxed about their financial prospects than for some time.

"In the thick of a leadership contest - and with Brexit as far from resolution as ever - the Bank will most likely err on the side of caution as we face continuing political and economic uncertainty during the rest of 2019.

While much of the month-to-month noise can be disregarded - inflation slowed from April because of changes to the cost of airfares around the Easter holiday - of more significance is the longer-term trend of consumer price growth slowing and settling at the rate desired by the Bank.

It is highly unlikely that the Bank of England will adjust interest rates when it meets tomorrow. Although it would likely prefer to tighten monetary policy, which remains extraordinarily loose, with inflation around target, economic growth crawling along and no clarity on the future path on Brexit, its hands are tied. Indeed, we do not expect the Bank to be able to adjust rates until greater clarity is provided on Brexit, which means the end of October at the very earliest.

10.05am BST

Here's the ONS's head of inflation, Mike Hardie, on today's data:

"Inflation eased in May, as travel prices such as air fares fell back after their Easter highs in April.

The overall rate of inflation has remained steady since the beginning of the year.

10.04am BST

While London house prices are falling, rents are going up.

Annual private rental prices in London rose by 0.9% in April, its highest rate since September 2017. The ONS suspects that demand for rental properties is outstripping supply.

9.58am BST

House prices also fell across the South East of England in April - helping to narrow the gap with the rest of the country.

9.49am BST

There's not much sign of inflation in Britain's housing market.

The ONS has reported that average house prices in the UK increased by 1.4% in the year to April 2019, down from 1.6% in March 2019.

Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England.

9.44am BST

Today's inflation report confirms that families are hit hard in the pocket if they take a foreign break during the Easter holidays.

Inflation fell back in May, having spiked in April as air fares jumped.

Transport fares fell by 3.8% overall between April and May this year, with the April prices influenced by Easter and the associated school holidays falling in the middle of the month.

In 2018, when Easter fell in early April before the price collection dates, fares rose between April and May by 2.0%. The contribution from transport services came from all categories - air, sea, rail and road - with the single largest contribution from air transport.

9.39am BST

CPIH, another inflation measure which includes housing costs, also fell last month - to 1.9%, from 2%.

9.34am BST

Newsflash: Britain's inflation rate has fallen, bringing some relief to UK households.

The Consumer Prices Index rose by 2.0% in the 12 months to May, the Office for National Statistics reports.

Falling fares for transport services, particularly air fares influenced by the timing of Easter in April, and falling car prices produced the largest downward contributions to the change in the rate between April and May 2019.

9.29am BST

Stand By Your Desks! UK inflation data is up next and we will find out if the weaker growth path for house prices continues. I certainly hope so.

9.28am BST

Brexit uncertainty is also continuing to weigh on UK building firms.

8.45am BST

European stock markets have opened cautiously, holding onto yesterday's strong gains.

The FTSE 100 has dipped by 4 points to 7,439, close to Tuesday's seven-week high.

The latest BAML data shows fund managers are at their most bearish since the global financial crisis a decade ago. Equity allocations have experienced their second worst drop on record - we've seen a huge move into cash. And yet and yet, we're close to all-time highs again for US equity markets at least. This is what you may call an unloved rally.

8.34am BST

Ouch! Shares in holidays and insurance group Saga have hit a record low after it warned that its business is still suffering from Brexit uncertainty.

Conditions in the travel market are very competitive and affected by current political uncertainties.

The Group's Tour Operations business is not immune to such pressures, with booked revenues for the full year down 4% as of 15 June when compared to the same period last year. In addition, margins for this year will be impacted by competitive discounting.

8.21am BST

City economists broadly expect that UK inflation fell last month, but there are a range of forecasts.

Some see CPI falling as low as 1.8% in May, from 2.1% in April, while others actually predict it rose to 2.2%. We'll find out in 70 minutes who's right.

Today's inflation data should confirm a softening in May.

The British consumer price index is expected to have eased from 2.1% y-o-y to 2.0% in May, as the core inflation is seen at 1.6% y-o-y versus 1.8% printed a month earlier. A soft inflation read can only revive the BoE doves and increase the selling pressure on the pound.

We did see a modest uptick in April largely as a result of increases in energy prices and council tax rates pushing headline CPI up to 2.1% and a six-month high.

Core prices were slightly more subdued but nonetheless the weaker pound and higher energy prices do appear to be exerting upward pressure on prices. We could see a rise to 2.2% in May, which will inevitably fuel speculation about a possible interest rate rise.

8.08am BST

Stock markets across the Asia-Pacific region have jumped sharply today, following last night's gains in Europe and the US.

Big moves in global equities y'day as Draghi admitted defeat in rekindling Eurozone inflation and Trump plans meeting with Xi. DJI closed 1.4% higher and UK shares should maintain momentum at the off.
German 10 yr bund yield -0.32% , US T 10yr +2.06%

"Investors are taking heart from the new development.

The two countries will at least be talking (after a lull), so the market thinks there is little chance that talks get broken off soon after they meet,"

7.59am BST

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

With Brexit uncertainty still gripping Britain, households could use a boost to real incomes. And the latest UK inflation data, due this morning, could provide it.

"We look for headline inflation to slow to 1.9% year-on-year, while core inflation slows to 1.6% y/y.

The recent depreciation in sterling should help support inflation in May and beyond, and the dip in inflation in May is largely due to base effects in core inflation that will unwind in June."

#UK inflation later today...
this is what the market expects. pic.twitter.com/RbgUeyA1Oz

Related: Donald Trump slams Mario Draghi's rate cut plans - as it happened