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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK grocery inflation hits 14.7%; recession looms as housing market weakens – as it happened

Primark Inflation Associated British Foods United States ABF Barclaycard Liam McBurney Euro
A shopping trolley is filled with groceries at the Tarleton Aldi store near Preston.
Grocery price inflation has hit 14.7%, adding a potential extra £682 to annual grocery bills Photograph: Christopher Furlong/Getty Images

Closing summary

Time for a recap, on a day in which the cost of living crisis worsened, and UK companies were hurt by rising inflation and falling confidence.

Supermarket inflation in the UK has hit a record high, driving up the average bill by £682 per year.

Grocery prices were 14.7% higher than a year ago in October, Kantar Worldpanel reports, as shoppers continued to be hit by rising costs. Demand for own-branded items jumped, while Aldi and Lidl outpaced other supermarkets again last month.

Retailers are feeling the squeeze too, with Primark’s owner saying it had faced cost inflation across an unprecedented range of inputs in the last year, leaving it with an extra £1bn of costs over the last year.

The discount clothing store has also decided not to raise prices further this year.

With consumers are cutting back on spending, Britain’s retailers are bracing themselves for a tough Christmas trading period.

The Bank of England is preparing to further raise interest rates over concerns that inflation could become embedded in the British economy, despite the growing risks of a prolonged recession, its chief economist has warned.

Huw Pill said there was “still more to do” to tackle soaring inflation after the central bank raised interest rates to 3% last week with the biggest single rise in borrowing costs since 1989.

Dropping the broadest possible hint that the Bank’s monetary policy committee (MPC) would use its next meeting in December to push interest rates higher, he said:

“I think there is more to do. We’ve done some, that’s what we did last week. And there’s still more to do.”

Pill also warned the UK was entering recession, and gave an eye-catching denial that the Bank’s monetary policy committee were ‘inflation nutters’. He says they were committed to fighting rising prices while minimising damage to the economy.

House builder Persimmon has given a clear warning that the property market is slowing.

Persimmon’s average sale prices have dropped 2% in the last six weeks, with fewer new sales and more buyers cancelling orders.

The world’s “most potent greenhouse gas” escaped during work on Scotland’s largest offshore windfarm, forcing the evacuation of workers.

UK rail services have been disrupted again, as train operators try to resume normal operations after this week’s strikes were cancelled.

The floor of the New York Stock Exchange (NYSE).
The floor of the New York Stock Exchange (NYSE). Photograph: Brendan McDermid/Reuters

Wall Street has opened cautiously, as investors anticipate deadlock on Capitol Hill after today’s midterm elections.

The Dow Jones industrial average has gained 57 points, or 0.18%, at the open to 32,884 points, while the broader S&P 500 index is flat.

Polls suggests the Republicans are well positioned to regain control of the House of Representatives and potentially the Senate as well.

That would create a divided government in Washington, making it considerably harder for president Biden to push through his plans.

Deadlock on Capitol Hill, depressingly enough, is seen as 'bullish for equities’, as Stephen Innes of SPI Asset Management explains:

Well, at least that’s the conventional wisdom, and the rationale is pretty straightforward.

Gridlock cross-checks each party’s “worst impulses,” and less activist fiscal policy is conducive to lower market volatility. That could be particularly helpful in 2022 and 2023 to the extent it calms rates volatility, the principal sponsor of this year’s historic cross-asset malaise.

You can follow the midterm election drama here:

World’s ‘most potent greenhouse gas’ escaped during work on UK windfarm

Wind turbines in the North Sea at the Egmond aan Zee wind farm
Wind turbines in the North Sea at the Egmond aan Zee wind farm Photograph: Bloomberg/Getty Images

The world’s “most potent greenhouse gas” escaped during work on Scotland’s largest offshore windfarm, forcing the evacuation of workers, it has emerged.

More than 80 workers on a platform at the £3bn Seagreen project, which is 27km off Scotland’s Angus coastline in the North Sea, had to move to another platform after sulphur hexafluoride (SF6) escaped.

Energy companies are attempting to find alternatives to SF6, which is banned in Europe except for use in power generation where it is used as an insulating gas in switchgear machinery.

The US Environmental Protection Agency deems it the most damaging greenhouse gas and National Grid describes it as “one of the most potent greenhouse gases we know”. It can cause respiratory problems for humans if they are exposed in high concentrations and is harmful to the environment.

More here:

Five Conservative MPs have thrown their hats into the ring to become the next chair of parliament’s Treasury committee.

  • Harriett Baldwin, MP for West Worcestershire

  • John Baron, MP for Basildon and Billericay

  • Richard Fuller, MP for North East Bedfordshire

  • Andrea Leadsom, MP for South Northamptonshire

  • Kit Malthouse, MP for North West Hampshire

Matt Hancock MP had also shown an interest. But he has abandoned legislative scrutiny in favour of a trip to I’m a Celebrity’s Australian jungle, where the former health secretary will soon be wolfing down all the exotic food stuffs a man could desire (and then some more too).

Only members of the governing Conservative party were eligible to chair the committee. MPs will vote tomorrow.

Each candidate has released a statement explaining why they are the best choice.

Baldwin, a current committee member, says the committee should rigorously question the Treasury’s actions over recent months and the plans that our new Chancellor has to balance the books.

Baron says he would champion compassionate economic policy, adding that “A prosperous economy, coupled with sound finances, provides the best opportunities to help those who are less fortunate”.

Fuller, who served on the committee before a brief stint as a Treasury minister this summer, vows to ensure “diligent, sometimes persistent, questioning of witnesses”; citing hs role in the committee’s investigation into the collapse of BHS.

Leadsom says the Committee must identify the winners and the losers from the cost of living crisis, and challenge monetary and fiscal decision makers to get the balance right, to protect lives and livelihoods.

Malthouse wants the committee to investigate why Bank of England forecasting was “so wrong”, press the Office for Budget Responsibility on its accountability, probe why so much government debt is linke to inflation, and look into the LDI pension crisis.

Eurozone consumers are also being hit by the cost of living squeeze.

Retail sales volumes during September were 0.6% lower than a year ago across the euro area, although they did rise by 0.4% compared with August.

ING’s senior eurozone economist, Bert Colijn, warns that the outlook for retail remains bleak. Inflation is eating into consumer spending power, as uncertainty about the economy increases.

Colijn explains how inflation is hurting consumers:

A modest increase in retail sales in September rounded out a disappointing third quarter in terms of consumer spending. While there were some upside surprises to be noted, the consumer in general has started to reign in spending as the cost-of-living crisis continues and reopening effects from the pandemic fade.

The effect of inflation is very apparent in retail sales as consumers bought -2.6% lower volumes in September than in June of last year but have spent 8.1% more.

Halloween confectionary sales drop

An illuminated halloween pumpkin

Trick or Treaters may have returned home with fewer sweets this autumn.

Today’s grocery market report shows that sales of confectionary in the run-up to Halloween were lower than last year – as consumers cut back on spending, and rules restricting the promotion of unhealthy products kicked in.

Kantar’s Fraser McKevitt explains:

The data shows just over one in ten households bought a pumpkin in October, but sales didn’t match the levels we saw last year.

There’s clear evidence that the new regulations for products high in fat, sugar and salt are changing the way these items are sold.

The proportion of confectionery bought on promotion during the month of October was 26%, down from 36% this time last year.”

Updated

Restaurants 'enter winter in freefall'

The Night Time Economy Adviser for Greater Manchester, Sacha Lord, has warned that the UK hospitality sector risks collapse unless it receives more help in next week’s autumn budget.

Lord says the number of restaurant and food outlets going into liquidation nationally has increased by almost 50% in the last quarter, as it enters winter “in freefall”.

A reduction in VAT and relief on business rates would give operators a lifeline, he explains, otherwise more will close.

Lord says:

The stark truth is that hospitality businesses are paying more for ingredients, energy and day to day business needs than they were this time last year, and we are seeing venues shutting due to financial difficulties on a daily basis.

Updated

Over in the US, small business confidence has dropped as high inflation hits firms, and the economy outlook deteriorates.

The National Federation of Independent Business (NFIB) reports that its Small Business Optimism Index fell 0.8 point to 91.3 last month to the lowest level since July.

That follows two months of gains, after a downturn in the first half of the year.

A third of business owners reported that inflation was the single most important issue in operating their business, up three points from September.

Almost half of reported they were struggling to fill job openings – at a time when vacancies are at near record levels.

Portfolio manager Mario Cavaggioni has more details:

Deutsche Bank: A deep, long UK recession may have started

We will find out on Friday if the UK economy shrank in the last quarter.

Deutsche Bank’s chief UK economist, Sanjay Raja, predicts UK GDP fell by 0.6% quarter-on-quarter in July-to-September, which could be the start of a ‘a deep and long recession’.

Raja explains:

The drop in Q3 GDP reflects continued weakness in household and business confidence, higher inflation, and higher interest rates in the economy, with household consumption contracting in the quarter, business investment slowing, and government spending falling further.

We also expect to see a material softening in inventories after two consecutive quarters of historically strong stockpiling, which should push GDP firmly into negative territory.

Deutsche Bank forecasts for Q3 UK GDP

Another contraction in the October-December quarter can’t be ruled out either, Raja adds, which would be a technical recession.

Looking further ahead, Deutsche Bank remain more downbeat on the economic outlook, he adds:

Headwinds to the UK economy will almost inevitably push the economy into recession, with global growth slowing, confidence deteriorating, and persistently high inflation and rising interest rates squeezing disposable incomes further.

Bank of England's Pill: UK entering recession

The UK economy is entering recession, the Bank of England’s chief economist has warned.

Huw Pill has told a conference organised by Swiss bank UBS this morning that the Bank can’t claim victory in its attempt to stop inflation becoming embedded in the economy.

Pill explained that interest rates are likely to rise further, in an attempt to prevent inflation leading to a spiral of higher wages and prices.

“I think we cannot declare victory against second-round effects, but we are entering a recession.

That’s a difficult trade-off environment for monetary policy.”

That trade-off saw the Bank make its biggest interest rate rise in 30 years last week, while also guiding the markets that borrowing costs wouldn’t increase as much as had been expected.

Pill said the Bank would need to think about the broader economic outlook at some point, but shouldn’t put the housing market ‘on a pedestal’.

And he insisted that the Monetary Policy Committee are not “inflation nutters” – but needs to control the surge in prices to stop inflation spreading.

Pill told the UBS conference:

“We’re not meant to be inflation nutters.

We are meant to sort of manage this trade-off in a way that avoids unnecessary, counterproductive maybe, disruptions to the real economy.”

[Thanks to Reuters for the quotes].

Updated

Supermarkets urged to help those in England’s ‘food deserts’,

People living in areas of Birmingham and Liverpool are most likely to struggle with access to affordable food, according to new research from Which? today.

The consumer group is urging the big supermarkets to step up support for low-income customers marooned in England’s “food deserts”, so they can readily access healthy groceries during the cost of living crisis.

The scarcity of affordable, healthy food is so acute in some of the poorest parts of Birmingham, Liverpool, Bradford, Durham and the Welsh valleys that the vast majority of neighbourhoods in these areas should get targeted help, Which? says.

The study found nearly half of neighbourhoods in the north-east of England – and about a third in Yorkshire, the West Midlands and the north-west of England – lacked easy access to supermarkets, and had poor availability for online deliveries and low levels of car ownership.

That makes it much harder for low-income households to put food on the table.

Persimmon: housing demand and prices fall as market falters

One of the UK’s largest housebuilders has warned that the housing market is slowing, as prices fall and more people cancel house purchases.

Persimmon has reported a “recent deterioration in market conditions”, with its average prices down 2% in the last six weeks.

Cancellation rates have increased to 28%, up from 21% in the preceding 12 weeks from the start of July.

That six week period covers the period following the mini-budget, when mortgage rates soared and lenders pulled many deals.

Chief executive Dean Finch told shareholders:

“Rising interest rates and broader economic uncertainty are clearly impacting mortgage lending and customer behaviour and this is reflected in our recent weekly sales rates and forward sales position.

In another sign that the market has slowed, Persimmon has booked £770m of sales beyond the current year, down from £1.15bn at this stage a year ago.

Average sales per Persimmon outlet has dropped to 0.60, from 0.78 – with demand cooling since the mini-budget.

Persimmon says:

Reflecting the uniquely disruptive political conditions and deteriorating economic outlook since September, in the last six weeks the average net private weekly sales rate per outlet has fallen to 0.48.

Persimmon has also lifted its provision for remedial safety work on blocks of flasts following the Grenfell Tower disaster, to £350m.

Shares in Persiimmon have fallen 6% – and have more than halved so far this year.

Victoria Scholar, head of investment at interactive investor, says:

Shares in Persimmon have been trading in a downtrend all year with losses accelerating in September in the aftermath of the mini-budget which sent mortgage rates soaring while a number of mortgage products were temporarily removed from the market altogether.

With borrowing costs spiking and the expectation that the housing market will fall into next year, potential buyers are deferring their decisions, holding off until property prices ease and mortgage rates also soften, adding to downward pressures on the housing market. We are also heading towards the seasonally slower period around Christmas when many buyers and sellers typically wait until the holidays are over in the new year to return to the market.

A near deserted Stockport railway station yesterday as rail strikes were called off too late for operators to roster staff to run a full timetable.
A near deserted Stockport railway station yesterday as rail strikes were called off too late for operators to roster staff to run a full timetable. Photograph: Christopher Thomond/The Guardian

It’s been a grim morning for some commuters, as the UK rail network struggles following the last-minute cancellation of this week’s strikes.

Many train services started later than usual, after three 24-hour strikes planned by railway workers for 5, 7 and 9 November were called off last Friday, as the RMT union said it would enter “a period of intensive negotiations” with Network Rail and other train operators.

However, there is still widespread disruption to services – more here:

Updated

Government: we'll fix 'blockage' stopping energy vouchers reach prepayment customers

With prices soaring in the shops, its vital that struggling families get cost of living support from government.

But many households with prepayment energy meters have not been receiving vouchers which give them monthly discounts, leaving them struggling to pay bills.

And today, Work and Pensions Secretary Mel Stride has acknowledged there is a “blockage” in getting energy discount vouchers for people on pre-payment meters.

Put to him on ITV’s Good Morning Britain that the programme has had a “huge number” of people getting in touch to say they are struggling to get their vouchers, he said:

“Firstly... the Government is very alive to the issue, and will be working with the energy companies, and are as we speak, to resolve those particular issues.”

Stride added that he has not “personally” had conversations with the energy firms, but pledged that his department will help clear the blockage.

“The most important thing, as I say, is that the Government is going to be gripping this issue and doing whatever is necessary to make sure that we unblock the blockage that there is in terms of getting those vouchers out.”

Sales of the very cheapest value own label ranges have jumped by 42% year-on-year, as cash-strapped shoppers traded down.

Kantar’s Fraser McKevitt explains:

These items currently represent just under 3% of the market, although retailers have been adding new products in recent months, so it will be interesting to see if this continues.”

Aldi and Lidl see fastest growth

Shoppers continued to flock to discount supermarkets.

Aldi was the fastest growing retailer in October, increasing its sales by 22.7% year on year to now hold a 9.2% market share.

Lidl boosted sales by 21.5% to take its market share to a new record high of 7.2%.

In contrast, Tesco’s sales grew 3.1%, while they fell 1.9% at Waitrose and by 4.6% at Morrisons.

Aldi and Lidl now make up 16.4% of the UK market, versus 4.4% 14 years ago.

Updated

Grocery price inflation hits record 14.7%

Supermarket inflation in the UK has soared towards 15%, driving up the average bill by £682 per year.

Grocery prices were 14.7% higher than a year ago in October, Kantar Worldpanel reports, as shoppers continued to be hit by rising costs.

That’s the highest reading on record, and means shoppers would face paying an extra £682 per year if they didn’t trade down to cheaper items, or simply not buy as much.

Prices are rising fastest for items such as margarine, milk and dog food, reports Kantar.

Worryingly, Kantar cautions it’s ‘still too early to call the ceiling’ on rising prices.

Sales of own label sales rose by over 10%, as people tried to save where possible, while the branded goods market grew far slower at 0.4%.

Here’s Fraser McKevitt, head of retail and consumer insight at Kantar:

“Yet again, we have a new record high figure for grocery price inflation and it’s too early right now to call the top.

Consumers face a £682 jump in their annual grocery bill if they continue to buy the same items and just over a quarter of all households [27%] now say they’re struggling financially, which is double the proportion we recorded last November.

Nine in ten of this group say higher food and drink prices are a major concern, second only to energy bills, so it’s clear just how much grocery inflation is hitting people’s wallets and adding to their domestic worries.”

Sales of Halloween items were down this year, while 32% fewer shoppers have bought their Christmas pudding than this time last year.

Updated

The next few months will highlight the extent of the high street’s polarisation, flags Sophie Lund-Yates, equity analyst at Hargreaves Lansdown:

“Primark is experiencing significant cost inflation and a very uncertain demand backdrop. Despite this, it’s vowed to keep prices steady following a recent round of increases.

This is an integral part of the group’s ability to keep customers coming through the doors. Without being the affordable name on the high street, Primark loses almost all its bargaining power. Primark is well aware that pushing prices too far will do nothing but alienate its core customers.

The launch of a click and collect trial will be lauded by fans of the shop, which despite recent revamps, still leaves a lot to be desired on the website front. While disappointing, it’s the lack of large scale delivery infrastructure that helps Primark keep its prices at attractive levels.

Associated British Foods financial results
Associated British Foods financial results Photograph: Associated British Foods

Primark has “found its feet again”, says Richard Hunter, head of markets at interactive investor, as UK shoppers have flocked back to its stores.

Its operating profit margin of 9.8% is above expectations, while the strength of trading at its UK stores has more than offset a weaker performance in Europe, where consumer confidence has dragged.

AB Foods is mindful of the mood music, and has decided to make no further price increases in its stores in addition to the ones already announced for the next two shopping seasons.

Updated

Although Primark’s trading was strong in the UK and the Republic of Ireland, it remained below pre-pandemic levels in Continental Europe.

ABF explains:

Consumer confidence [in Europe] was generally weaker and market data for some markets indicate that the total apparel market was still well below pre-Covid levels.

Trade was affected by the exceptionally hot summer months and with colder weather we have seen many markets improve.

Updated

Primark has achieved “impressive results against the harsh economic backdrop”, says Richard Lim, CEO of Retail Economics:

ABF’s results show that Primark more than doubled its adjusted operating profits in the year to 17 September, to £756m, as customers returned to high streets and retail parks.

Lim says Primark, with its focus on affordable clothes, could be in demand as customers look to cut spending:

The retailer is well-positioned to benefit from consumers who are trading down and putting lower costs at the heart of their buying decisions.

Many shoppers are prepared to sacrifice perceived quality and the convenience of online delivery for lower costs and it’s driving people back into stores across parts of the sector.

“However, there’s a perfect storm of cost pressures facing the retailer from spiralling input and operating costs and the impact of a weaker pound and rising interest rates.

Resisting further price increases this year (beyond those in the pipeline) will help Primark protect and build market share in the longer term, Lim adds:

It’s inevitable that margins will be hit, but they are likely to weather the storm better than most with a value-driven proposition and diversified business as the economy enters recession.”

UK retailers braced for tough Christmas as shoppers feel squeeze

Britain’s retailers are bracing themselves for a tough Christmas trading period as hard-pressed consumers react to a worsening cost of living crisis by cutting back on spending.

The monthly snapshot of spending by Barclaycard, which accounts for half of debit and credit card transactions, found that 50% of consumers were planning to tighten their belts this Christmas, cutting back on presents, food and drink, and socialising.

Esme Harwood, a director at Barclaycard, said:

“Rising petrol and supermarket costs continue to bite but Brits are spending less on energy bills as government support kicks in and people find ways to economise at home.

Consumers continue to swap big nights out for cosy evenings in as they reduce their discretionary spending, while health and beauty, and home improvements enjoy a little boost.”

Two in three consumers (66%) were finding ways to save energy at home to reduce the cost of their gas and electricity bills, Barclaycard found. Many of those were wearing more layers at home (63%), while 56% were avoiding using central heating unless absolutely necessary.

Primark to hold prices to 'stand by customers'

With consumer disposable income falling due to soaring inflation, Associated British Foods has decided not to bring in further price increases on Primark’s autumn/winter and spring/summer ranges (beyond those already implemented or planned).

George Weston, chief executive of Associated British Foods, explains:

Primark has faced significant input cost inflation and sharply moving currency exchange rates.

We have decided to hold prices for the new financial year at the levels already implemented and planned and to stand by our customers, rather than set pricing against these highly volatile input costs and exchange rates.

Introduction: Primark owner facing 'highly volatile' input costs and exchange rates

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

With its grocery, sugar, agriculture, ingredients and retail divisions, Associated British Foods is a solid bellwether of economic conditions.

And this morning, the owner of the Primark clothing chain has warned that it faces rising costs, just as the cost of living crisis hits spending.

In its full-year results, ABF says it faced cost inflation across an unprecedented range of inputs in the last year, even as profits bounced back as the impact of Covid-19 faded.

Chairman Michael McLintock estimates that inflation pushed up costs across the Group by some £1bn in this year alone in the last year.

He says ABF:

…encountered the most challenging economic conditions for many years with sharply rising and broadly based inflation, as well as highly volatile input costs and exchange rate.

And he adds:

Although hard work has successfully recovered much of this cost inflation, more remains to be done.

Primark faces a range of challenges. ABF says input cost inflation is expected to be significant in the year ahead, due to rising raw materials and energy costs, and higher wages.

The firm also faces higher purchasing costs which have resulted from the strengthening of the US dollar against sterling and the euro.

In the 12 months to 17 September, sales at Primark were 43% higher than last year, at £7.7bn, as its shops reopened after pandemic lockdowns.

ABF made a statutory profit before tax for the last year of £1,076m, up 48%.

For the year ahead, ABF expects significant sales growth across the busines, but expects a fall in adjusted operating profits and adjusted earnings per share, due to those higher costs.

Some retailers have launched their Christmas adverts early, to help customers spread the cost of the festive season (and to drum up extra demand, no doubt). But there are signs that households are cutting back this year.

Retail sales grew by just over 1% in value year on year in October, according to the latest survey from the British Retail Consortium (BRC). With inflation at around 10%, that means sales volumes fell as shoppers bought fewer items per visit.

Online retailers saw sales decline in every category, apart from furniture, as consumers looked for bargains on the high street and retail parks.

BRC chief executive Helen Dickinson said people have been snapping up electrical items to help them through the energy crisis:

“With November Black Friday sales just around the corner, many people look to be delaying spending, particularly on bigger purchases.

“Clothing and footwear, which saw stronger sales this year, declined as the mild weather meant customers held back on buying winter outfits. Meanwhile, electric blankets, air fryers and other energy-efficient appliances continued to fly off the shelves as people sought future cost savings.

The agenda

  • 7.45am GMT: France’s trade balance for September

  • 8am GMT: Kantar supermarket sales report for October

  • 10am GMT: Eurozone retail sales

  • 11am GMT: NFIB index of US business optimism

  • 12pm GMT: Russia’s monetary policy report

Updated

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