UK inflation slows more than expected to 2%, first easing since February – as it happened

Julia Kollewe

from on 2021-08-18 14:02 (#5NF9C)

3.02pm BST

While Asian markets rose following five days of declines, stocks in Europe and the US are drifting lower ahead of the minutes of the US Federal Reserve's last meeting, out at 7pm BST, with chair Jerome Powell holding a press conference shortly after.

UK inflation slowed more than expected to 2% in July from 2.5% in June, the first easing since February, official figures showed today. But economists think this is merely a blip and that inflation will head towards 4% (as forecast by the Bank of England) in coming months.

2.01pm BST

Wall Street has opened lower, further retreating from the record highs set by the Dow Jones and S&P 500 on Monday and last week.

1.44pm BST

The number of US housing starts fell sharply in July, by 7% to 1.5m, following June's 3.5% increase (revised from 6.3%), according to the latest new residential construction data from the US Census Bureau and the Department of Housing and Urban Development. You can read the full report here.

Building permits rose by 2.6% to 1.6m, following a 5.3% decline in June. The number of houses completed increased 5.6% to 1.4m.

12.24pm BST

In the US, mortgage applications fell by 3.9% last week owing to a drop in both refinancing and purchase activity, mostly the former. This comes as the long-term mortgage rate climbs back above 3% for the first time in about a month, noted currency analyst Justin Low at ForexLive.

MBA says:

Mortgage rates followed an overall increase in Treasury yields last week, which started higher from the strong July jobs report before slowing because of weaker consumer sentiment and concerns about rising Covid-19 cases. The eligible pool of homeowners who stand to benefit from a refinance is smaller now.

US MBA mortgage applications w.e. 13 August -3.9% vs +2.8% prior https://t.co/9qyRMhHq9t

12.02pm BST

And here's our full story on UK house prices -

House prices are rising at their fastest rate in almost 17 years after a dash to beat a stamp duty holiday deadline in England and Northern Ireland pushed the annual rate of property inflation to 13.2% in June.

10.33am BST

Here's our analysis of today's UK inflation figures.

10.30am BST

Staying with the inflation theme... while overall UK consumer prices inflation cooled more than expected in July to 2%, house prices picked up in June, the last month before the phasing out of chancellor Rishi Sunak's stamp duty cut.

According to data from the Office for National Statistics, house prices rose 13.2% in June from a year earlier, the fastest annual rate since 2004. The surge came as buyers sought to beat the deadline for the stamp duty cut.

Prices went berserk as the stamp duty taper closed in. The pace of growth set in the North West is frankly astonishing. This is the last time this year, or even in our lifetimes, that you'll see growth spurts like this in response to government support.

Needless to say, as soon as July arrived we entered a very different market, and some of this exuberance will have to unwind. London is probably most protected from that eventuality. Prices are still approximately double the national average in London but the capital hasn't had its running shoes on like the rest of the country.

10.24am BST

Eurozone inflation picked up to 2.2% in July from 1.9% in June - marking the highest annual rate in nearly three years, above the European Central Bank's 2% target, final data released by the EU's statistics office showed this morning. It confirmed an earlier estimate.

The ECB is predicting further increases in inflation in the coming months, but sees this as largely temporary.

10.16am BST

More Australian news... Wage growth remained sluggish even before the Delta outbreak, while the fear of job losses still looms, according to two new economic reports painting a less than rosy view of the Australian economy, writes Amy Remeikis, Guardian Australia's political reporter.

The latest data from the Australian Bureau of Statistics shows wage growth fell to 0.4% in the June quarter, down from 0.6% in the proceeding two quarters, while public sector wages were growing at their slowest pace in 24 years.

9.58am BST

The FTSE 100 index is now down 0.37%. Mining giant BHP is the biggest loser on the blue-chip index, down 3.9%, after it confirmed yesterday that will exit the FTSE and move its main listing to Australia as part of a bigger corporate overhaul.

Russ Mould, investment director at the stockbroker AJ Bell, says:

The FTSE 100 started Wednesday modestly lower as UK inflation eased back more than anticipate. This is good news for those fretting about rising prices but potentially raises some questions about the strength of the UK economic recovery.

Mining firm BHP proved to be a drag on the index after confirmation yesterday that its corporate restructuring would mean an exit from the FTSE 100 as the primary listing for the shares goes to Australia.

9.17am BST

Returning to the controversial 1.1bn takeover of British asthma inhaler maker Vectura by the American tobacco giant Philip Morris International: PMI has acquired 22.6% of Vectura in the market, and is looking to buy more shares at 165p apiece as part of its takeover deal.

Vectura shares are currently trading at 164.8p.

9.10am BST

Europe's major stock indices have all moved into the red, as investors worry about rising Covid cases around the world.

9.04am BST

Also in Australia, environmentalist groups have flagged concerns over mining group BHP's dumping of oil and gas fields onto Woodside Petroleum.

Woodside Petroleum has not given a guarantee it will pay for billions of dollars in decommissioning and remediation costs linked to a portfolio of oil and gas fields it has agreed to take over from BHP, write my Australian colleagues Ben Butler and Royce Kurmelovs.

8.59am BST

Australia's flag carrier Qantas will require all of its employees to be fully vaccinated against Covid-19, as debate about mandatory vaccination in Australian workplaces intensifies.

By 15 November, all frontline employees, including cabin crew, pilots and airport workers, will need to be fully vaccinated. All remaining employees will have until 31 March 2022 to get vaccinated.

8.58am BST

Here's our story from last night on Nando's temporary restaurant closures:

Peri-peri chicken wings have become the latest casualty of Covid-related upheaval in the food industry, with a shortage of chicken forcing Nando's to temporarily close a 10th of its restaurants, writes our consumer affairs correspondent Zoe Wood.

8.57am BST

In other news, shareholders in the UK asthma inhaler maker Vectura have been urged to reject a 1.1bn takeover by the tobacco company Philip Morris International (PMI), in an open letter signed by 35 health charities, public health experts and doctors from around the world.

Investors in the Wiltshire-based respiratory medicine specialist have until 15 September to decide whether to sell their shares to PMI, which has touted its ambitions for a smoke-free" future but still derives 75% of its revenue from cigarettes, writes my colleague Rob Davies.

8.55am BST

Here is our full story on inflation:

8.52am BST

Kevin Brown, savings specialist at Scottish Friendly, is also not impressed:

The misery of rising costs is heavily compounded for rail commuters today. It is scandalous that rail fares are set by such an outdated measure. Those who rely on trains to get to work - many of which are now being told to return to the office - now face bumper rises in costs.

Many will have been able to forgo a season ticket during the pandemic, even perhaps putting away some much-needed savings instead. That so many office workers are now set to return to normal' though, and the high costs that entails, could be a huge blow in financial terms. The pandemic had an unexpected positive impact on many people's savings as they were able to stay home and save more. That is now unfortunately at risk of being unwound by the return to normal.

8.49am BST

A separate inflation measure released by the ONS, the retail prices index, showed a 3.8% rise - nearly double that of the annual increase in the consumer prices index. The RPI measure serves as a basis for increases in rail fares.

This means that season rail fares could rocket by up to 4.8% next year - the biggest increase in a decade.

Rail travel has long been unaffordable for many people, thanks to the Conservatives prioritising the profits of private companies over passengers.

This would be yet another eye-watering hike hot on the heels of the failure of the government's so-called money saving flexi ticket scheme.

8.37am BST

8.24am BST

Some more reaction to the UK inflation numbers.

Debapratim De, senior economist at Deloitte, says:

June's inflation figures provide further evidence that supply, of both raw materials and labour, is struggling to keep up with resurgent demand. Central banks in the UK, US and Europe expect supply bottlenecks and inflation to ease next year once the global recovery finds firmer footing and government support schemes are unwound.

With millions still on furlough in the UK and firms operating with greater spare capacity than before the pandemic, price pressures may well be transitory. Policymakers are pricing in a recovery that is just right - with strong growth and temporarily higher inflation. That seems likely. But it is by no means assured.

CPI inflation slowed from 2.5% in June to 2.0% in July. The ONS attributed almost half of the slowdown to strong base effects caused by a spike in the price of services last year when the economy reopened after the first lockdown. Alongside this, some of the recent price rises in the volatile clothing and recreation and culture categories unwound, suggesting that the pandemic had temporarily altered seasonal pricing patterns. But there was some offset from another significant rise in petrol prices.

July's data is likely to represent brief respite from the upward movement in inflation rates. August will see base effects push annual inflation up again, with last August having seen both the VAT cut for the hospitality sector and the Eat Out to Help Out scheme. Indeed, it could be possible that the annual CPI rate will rise by as much as one percentage point between July and August.

8.18am BST

European stock markets are just about in positive territory, but pretty flat. The UK's FTSE 100 is up 6 points at 7,186 while Germany's Dax is 10 points ahead at 15,932.

8.14am BST

Prices for clothes and footwear fell by 2% between June and July, compared with a smaller fall of 0.7% last year. However, the ONS noted that there was less discounting than usual in the summer sales this year, while last year there were big bargains to be had after the first Covid lockdown.

A downward contribution came from restaurant and cafe meals and drinks, where prices rose by less than in 2020. Prices for package holidays are estimated to have fallen slightly this year, compared with a rise a year ago.

Inflation fell back in July across a broad range of goods and services, including clothing, which decreased with summer sales returning after the pandemic hit the sector last year. This was offset by a sharp rise in the price of second-hand cars amidst increased demand, following a shortage of new models.

The differing patterns of movement restrictions across the last two years have affected headline inflation. Some of this month's fall came from products and services, such as foreign travel, where real prices were used last year but have had to be imputed this year.

7.42am BST

Inflation will head higher again after July's blip, but that's no reason to panic, says James Smith, developed markets economist at ING.

Despite a temporary setback in July, UK inflation is unlikely to be far off 3% in August and will probably be fairly close to the Bank of England's 4% forecast by November. But things are likely to calm down into 2022, and we don't think inflation will be enough of a concern for policymakers to hike interest rates before late next year.

7.31am BST

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

UK inflation has slowed more sharply than expected in July, with the annual rate falling to 2% from 2.5% in June, the Office for National Statistics said. Economists had pencilled in a rate of 2.3%.

July's decline in CPI inflation is attributable to the sharp increase in prices a year ago, when the economy emerged from lockdown and the ONS stopped imputing prices for goods and services that were previously unavailable.

Looking ahead, the headline rate remains on course to rise sharply, though we think the Bank of England's forecast for a 4.0% average rate in Q4 and Q1 is a bit too high.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) was 2.1% in the 12 months to July 2021.

This was down from 2.4% in the 12 months to June 2021 https://t.co/5trxIDcP4Q pic.twitter.com/Pz516XPWEG

Factory gate inflation (the price of goods when leaving the factory) rose 4.9% in the 12 months to July 2021.

This was up from 4.5% in June 2021 https://t.co/3xmBtIGBEq pic.twitter.com/DZR0RcAkOQ

.@ONS data out this morning shows inflation fell back in July with CPIH at 2.1% (compared with 2.4% in June).

But this is likely to prove a temporary blip in inflation's move towards 4% in the coming months.

Short thread to follow...

@ONS data shows UK CPI #inflation slipped to 2.0% in July-21, from 2.5% in June - the first easing in inflation since Feb-21

However, this largely reflects base effects (inflation rose rapidly in July-20), rather than a meaningful shift in the recent upward path for inflation. pic.twitter.com/4CX2HwgIya

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