UK inflation jumps to six-month high of 1.8% –as it happened

Jasper Jolly

from on 2020-02-19 14:56 (#4ZJBX)

Rolling coverage of business, economics and markets as British prices rise faster than expected

2.56pm GMT

The Nasdaq index in New York has hit its latest record high, with investors apparently circumspect about the risks of the coronavirus outbreak worsening and the prospect of central banks stepping in to help the economy along.

The Nasdaq composite index gained 0.6% in early trading on Wall Street, hitting 9,795 points for the new record.

ING Bank: UK inflation is set to fall over the next few months on lower household energy costs. Barring a more significant decline in economic activity, we think the Bank of England will 'look through' lower CPI and keep rates on hold this year. #forex #fx #currencies #fxstreet

2.09pm GMT

Qatar Airways has spent about 460m on increasing its stake in British Airways-owner IAG to increase its holding to 25.1%, strengthening its position ahead of a change in IAG management, Reuters reports:

In an endorsement of the Anglo-Spanish group just weeks before its founder Willie Walsh steps down, Qatar said on Wednesday the move showed its support for IAG and its strategy.

Qatar previously held 21.4% of IAG, which also owns Spanish carriers Iberia and Vueling and Ireland's Aer Lingus. IAG's share price has risen by 52% in the last six months.

1.32pm GMT

There's a mighty row brewing around Britain's biggest mining project in North Yorkshire.

The lack of 'final' offer, in Odey's opinion, suggests that Anglo American would be willing to bid substantially more for Sirius, with the investment case remaining highly attractive for Anglo American, even at a materially higher bid level.

12.49pm GMT

It's still looking like an easy day for European stock market investors: blue-chip shares have notched up another record high.

The 0.6% gain for the Stoxx 600 index gives it a 3.5% increase for 2020 so far, and we're only halfway through February.

12.42pm GMT

Laura Ashley has agreed emergency funding with its bank, Wells Fargo, staving off the threat of bankruptcy.

The company welcomes the support from MUI Asia Limited and continues to review its working capital needs on an ongoing basis. The company will update shareholders in due course in relation to the review of its working capital needs.

12.24pm GMT

Financial leaders of the world's 20 largest economies (G20) will say that the coronavirus epidemic is a downside risk to forecasts of global growth, according to a draft communique. Private sector estimats of the cost suggest it could be big - but temporary.

Reuters has seen the document, ahead of the meeting of finance ministers and central bank governors due this weekend.

Our scenarios see world GDP hit as a result of declines in discretionary consumption and travel and tourism, with some knock-on financial market effects and weaker investment.

12.03pm GMT

A quick currencies update (on a pretty quiet day in foreign exchange markets): sterling has lost 0.1% against the US dollar, with brief gains from the inflation beat failing to hold.

"Pound hugs $1.30" is the headline from Reuters - perhaps not the most exciting development. It's worth noting that against the euro the pound is at levels, above a1.20, not seen since the EU referendum in 2016 - barring the post-election result spike.

11.48am GMT

It was announced last night, but if you haven't caught up yet, there are some pretty momentous plans in train for the UK's post-Brexit immigration system.

The new policy represents a break with the past and is highly interventionist. As a member of the European Union, the government was only able to limit migration from non-EU countries. Under the new approach, the UK will be open to highly skilled workers from anywhere in the world, but the door to those with low skills will be closed.

11.29am GMT

Here's the full detail on the inflation figures, from the Guardian's Phillip Inman:

Inflation jumped to a six-month high of 1.8% in January after a surge in petrol prices and an increase in the cost of gas and electricity over last year.

10.57am GMT

US stock markets are looking up.

Futures for the S&P 500 suggest the US benchmark index will gain 0.2% when it opens later today, while the tech-heavy Nasdaq is expected to rise by 0.3%.

10.47am GMT

Economists are wondering whether the Bank of England's efforts to raise interest rates from historical lows will be short-lived, given fears over the state of the global economy.

Melanie Baker, senior economist at Royal London Asset Management, said:

Inflation rose closer to the Bank of England's target, but underneath the noise of the headline figures, domestically-driven inflation still looks weak.

Business sentiment and the follow-through to activity data will, however, be the more important determinant of whether the Bank of England cut rates or not in coming months.

A prolonged shutdown in production activity as a result of Covid-19 could exert a drag on industrial production and disrupt global supply chains, which could lead to further inflationary pressures as the shortage of inputs and key components start to bite.

Looking towards the medium-term, a modest recovery this year that spurs further business activity, combined with continued upward pressure on wages due to a tight labour market could also give rise to inflationary pressures.

10.30am GMT

Some more reactions on the slight-surprise inflation reading - first of all from a man who a week ago would not have been expected to be in the spotlight, and his opposition, who is likely to leave the spotlight in April.

Conservative chancellor Rishi Sunak said:

Families across the country are better off as a result of the strong wage growth and low inflation over the last 18 months.

We want to go further to help with the cost of living - that's why we've cut taxes for 31m people and given nearly 2.4m a pay rise through our record increase to the National Living Wage.

The Tories' poor economic management has contributed to an unstable economy, with prices rising sharply for people already suffering from ten years of vicious cuts.

Successive Conservative governments have repeatedly blamed anyone but themselves for an under-performing economy.

10.01am GMT

The inflation reading may have taken economists by surprise (1.8% against a 1.6% consensus), but it may not have a major effect on interest rate prospects, economists suggest.

The figures were in line with the Bank's January monetary policy report forecast, according to Ruth Gregory, senior UK economist at Capital Economics, a consultancy. She said:

While CPI inflation rose for the first time in six months, the inflation figures were in line with the Bank of England's expectations, so they are unlikely to move the dial on the outlook for interest rates.

CPI inflation still looks likely to slip back to 1.5% within the next few months and remain below 2% for the rest of the year. But for the MPC, the fact that inflation is evolving in line with its projections provides another reason not to cut interest rates in the near term.

9.55am GMT

House prices rose across the UK in December - the first time that has happened since February 2018.

Although the ONS did not give a specific reason for the increase, many economists have ascribed the rise in prices to the Conservative party's majority won in the general election of 12 December.

Annual house prices grew across all regions of the UK, the first time this has happened in nearly two years, with London seeing its strongest growth since October 2017.

9.47am GMT

The consumer price index (CPI) of inflation (still the measure used by the Bank of England, despite the ONS's best efforts) has faded over the past few years as the effects of the post-Brexit-vote devaluation of sterling have passed through.

The rise in inflation is largely the result of higher prices at the pump and airfares falling by less than a year ago. In addition, gas and electricity prices were unchanged this month, but fell this time last year due to the introduction of the energy price cap.

9.31am GMT

The UK's consumer price index of inflation rose by 1.8% year-on-year in January, the fastest rate of growth in six months, according to the Office for National Statistics.

Economists had expected inflation of 1.6%. Prices rose by 1.3% year-on-year in December.

9.27am GMT

The FTSE 100 has now gained more than 1% today, or 77 points, to reach 7,459 points. The mid-cap FTSE 250 has gained 0.5%.

Stock indices have risen across the board in Europe, with the Stoxx 600 index up by 0.55%.

It feels like markets are looking for any excuse to feel positive at the moment. Apple's coronavirus-linked iPhone sales warning earlier this week may have spooked investors briefly. However, markets have soon shifted their attention elsewhere.

9.15am GMT

An interesting update on the trade relationship between the UK and the EU: German exports to the UK fell to their lowest level since 2013 last year.

The UK is Germany's fifth-largest customer, but exports fell 4.2% to a78.7bn. At the same time Germany's total exports rose 0.8% year-on-year to reach a record high. Reuters reports:

German exports to Britain fell for the fourth year running in 2019, according to Statistical Office data seen by Reuters, as the weak pound dampened demand and uncertainty over post-Brexit trade regulations disrupted existing supply chains.

Exports of cars, aircraft and aircraft parts, electronic equipment and pharmaceutical products had fallen, the data showed

The main cause is the continuing uncertainty over the trade relationship after 2020, when the transition phase is over.

9.09am GMT

Here's the torrid tale of the 737 Max's almost three years since launching.

Troubles first emerged on 29 October 2018, when 189 people aboard a Lion Air flight from Jakarta crashed. In March Boeing's fleet was grounded.

(May 22, 2017) Boeing 737 Max enters commercial service

Referring to the Federal Aviation Authority, the US regulator that certified the plane as safe to fly, another message says: "I'll be shocked if the FAA passes this turd."

One employee said in 2018: "I still haven't been forgiven by God for the covering up I did last year."

9.01am GMT

With the return of Boeing's 737 Max to the skies not expected until late spring at the earliest, those effects on the US economy will be significant, according to economists.

Moody's Investor Service, the influential credit rating agency, said that US economic growth will decelerate during 2020, in part because of the crisis at Boeing. In a note published on Monday its analysts said:

Boeing's decision to temporarily halt the production of the 737 Max will weigh on Q1 GDP, subtracting as much as 0.5 percentage points, because of the effect on manufacturers down the supply chain.

8.42am GMT

Here's Boeing's full statement on the debris discovery, from a spokesman:

Safely returning the 737 Max to service is our top priority. While conducting maintenance we discovered foreign object debris [FOD] in undelivered 737 Max airplanes currently in storage.

That finding led to a robust internal investigation and immediate corrective actions in our production system. We are also inspecting all stored 737 Max airplanes at Boeing to ensure there is no FOD.

8.39am GMT

Some more on Boeing, a company so big that its travails have caused an appreciable dent in US manufacturing figures.

Boeing lost its crown as the world's largest producer of planes in 2019 to fierce European rival Airbus - for the first time since 2011. Boeing produced only 380 planes last year, compared to Airbus's 863.

The threat for Boeing is that the longer it idles its own machines and workers, the greater the risk of long-term damage to the supply chain.

8.23am GMT

Metro Bank has appointed a new chief executive - or rather, it has removed the word "interim" from his title.

8.06am GMT

European markets have gained at the opening bell, with the FTSE 100 up by 0.5% to about 7,421 points.

Germany's Dax and France's Cac 40 indices also gained 0.5% apiece.

7.50am GMT

Good morning, and welcome to our live coverage of the world of business, economics and markets.

Boeing has ordered inspections of its entire fleet of grounded 737 Max planes after it found debris in the fuel tanks of some, in the latest setback for the US planemaker.

A Boeing spokesman said that the issue would not change the company's belief that the Federal Aviation Administration will certify the plane to fly again this summer. An FAA spokesman said the agency knows that Boeing is conducting a voluntary inspection of undelivered Max planes.

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