Closing summary
Stock markets extended their rally when they opened as fears of an energy supply crunch eased, with the key Nord Stream 1 gas pipeline from Russia to Europe due to resume operation on Thursday after maintenance work. But shares later turned negative as worries over energy supplies and recession resurfaced.
The FTSE 100 in London is trading some 18 points lower at 7,279, a 0.2% fall, while Germany’s Dax is down 0.8%, France’s CAC lost 0.5% and Italy’s FTSE MiB dropped 1.5%. The Italian prime minister Mario Draghi demanded a new pact from his coalition partners if they wanted him to stay in office, after tendering his resignation six days ago.
On Wall Street, shares were mixed: the Nasdaq opened 0.1% higher after a positive outlook from Netflix set the tone for other high-growth stocks, while the S&P 500 and the Dow Jones were flat.
The EU’s executive in Brussels has set out a plan to cut gas use, urging member states to cut consumption by 15% between 1 August and 31 March. It’s a voluntary cut, but could become mandatory in an emergency. The president of the European Commission, Ursula von der Leyen, said a complete shutdown of Russian gas flows was “likely”.
The EU has been scrambling to wean itself off Russian gas since the invasion of Ukraine, but is alarmed about a potential energy crisis this winter.
In response to EU support for Kyiv, the Kremlin has already stopped or reduced gas supplies to a dozen EU member states and is expected to send lower volumes of gas to Germany when the Nord Stream 1 pipeline reopens on Thursday.
In the UK, rising petrol and diesel prices for motorists and dearer food pushed Britain’s annual inflation rate to a fresh 40-year high of 9.4% last month.
Inflation also picked up in Canada, to 8.1% last month, the fastest annual increase in the cost of living in 39 years, caused by a near-55% spike in gasoline prices and a near-9% rise in food prices.
Here’s a round-up of today’s other main stories:
In Canada, inflation picked up to 8.1% last month, according to Statistics Canada, the fastest annual increase in the cost of living in 39 years.
Gasoline was the biggest single factor pushing inflation up, as pump prices were up 54.6% compared to the same month a year ago, while food prices jumped 8.8%.
Italy's Draghi seeks new coalition pact
The Italian prime minister Mario Draghi has stepped back from resigning, calling on his coalition partners to come up with a new pact to save his unity government from collapse, after receiving public support for the coalition.
Six days after the president rejected his resignation, Draghi told Italy’s Senate a new agreement was “the only way, if we want to stay together”.
We need a new, sincere and concrete pact: are you ready?
Draghi, the former president of the European Central Bank, has led an Italian unity government for 18 months and was due to step down next year ahead of elections. But he stood down last Thursday when a key member of the coalition government, the populist Five Star movement, pulled out of a confidence vote and triggered a political crisis.
Meanwhile, in London Boris Johnson bowed out of his final parliamentary appearance with a round of applause from his party, jeers from the opposition and this exit line:
Mission largely accomplished... hasta la vista, baby.
Opposition parties have accused Rishi Sunak of “economic illiteracy” and a lack of seriousness over the climate emergency after he announced a plan for the UK to become energy independent while at the same time making it harder to use onshore wind, writes our political correspondent Peter Walker.
Before the fifth and final round of MPs’ voting for the Conservative party leadership on Wednesday, the former chancellor set out what he called an “energy sovereignty strategy”, intended to achieve UK energy independence by 2045 at the latest.
But in the same announcement, Sunak pledged that as prime minister he would make it more difficult to build onshore windfarms in England.
UK give go-ahead to Sizewell C nuclear plant
The UK government has given planning consent to the £20bn Sizewell C nuclear power plant in Suffolk, writes our energy correspondent Alex Lawson.
The decision, which had been repeatedly delayed, was finally announced on Wednesday.
French energy company EDF wants to build the two reactor plant next to its existing site at Sizewell B, which began operating in 1995.
However, the proposals have faced fierce opposition from local campaigners, who have argued against the project because of the environmental impact and the cost to energy billpayers. Campaigners now have six weeks to decide whether to appeal against the decision.
Here is our full story on the EU’s plan to cut gas consumption by 15% between 1 August and the end of next March.
And here is the latest on the UK heatwave and that damage it’s caused to the UK’s railways.
Severe disruption on Britain’s railway continued on Wednesday while engineers worked to repair the effects of an unprecedented heatwave, as Network Rail announced a new “resilience taskforce” to plan for future extreme weather, reports our transport correspondent Gwyn Topham.
Services were expected to return towards normal later in the day, after two days of blanket speed restrictions and mainline closures, but damage including broken overhead wires and fires that spread on to tracks was still halting many services on Wednesday morning.
The East Coast mainline remained closed between London and Peterborough after a fire on Tuesday evening, suspending LNER services out of King’s Cross, and Thameslink and Great Northern services north of the capital.
‘Everything is going up’: the UK hospitality sector struggles as inflation soars, writes our retail correspondent Sarah Butler.
“I am wrestling every single day to keep the business up,” said Damian Wawrzyniak, the chef behind Peterborough gastro pub House of Feasts, who fears he will have to close the restaurant next month after six years.
Wawrzyniak said bills had soared but he could not raise prices to compensate as ordinary people cut non-essentials including dining out to cope with the rising cost of living.
The number of diners visiting his restaurant is down by about 40% while the cost of some ingredients has gone up 40% or more. “The price of cheese has doubled. Oil is [through] the roof. My energy bill is up by 300% and is now nearly the same as the rent,” said Wawrzyniak. “Electricity, gas, BT … Everything is going up, even insurance.”
Updated
Jedidajah Otte has spoken to three people with a disability or illness, who are struggling with the soaring cost of living.
Back in the UK, low-fat milk has gone up the most in price in a range of everyday items, by 26.3% in June, followed by butter, up 21.5%, according to a breakdown of this morning’s official inflation figures.
Jam is 15.1% more expensive, eggs have gone up 11.5% and bread is 9.7% dearer.
Updated
In Russia, the gas giant Gazprom said today that it had still not received documentation from Siemens needed to reinstall a turbine for the Nord Stream 1 gas pipeline following maintenance work.
The pipeline, which transports gas from Russia to Europe, is scheduled to return to operation on Thursday.
It is the single largest route for Russian gas exports to Europe and runs under the Baltic sea to Germany. Kremlin-controlled Gazprom cut gas exports through the pipeline to 40% of capacity last month, citing delays in the return of a turbine that Siemens Energy was servicing in Canada.
EU executive warns complete shutdown of Russian gas 'likely'
The EU executive warned that a complete shutdown of Russian supplies was “likely,” reports Jennifer Rankin from Brussels.
The EU has been scrambling to wean itself off Russian gas since the invasion of Ukraine, but is alarmed about a potential energy crisis this winter. In response to EU support for Kyiv, the Kremlin has already stopped or reduced gas supplies to a dozen EU member states and is expected to send lower volumes of gas to Germany when the Nord Stream I pipeline reopens on Thursday after scheduled maintenance works.
The European Commission President Ursula von der Leyen said the Kremlin had kept gas storage as low as possible before the invasion and gone on to cut supplies.
Russia is blackmailing us, Russia is using energy as a weapon.
She told reporters a complete stop of Russian gas was likely:
It is a likely scenario that there is a full cut off of Russian gas and that would hit the whole European Union. A gas crisis in the single market, our economic powerhouse, will affect every single member state in our European Union.
Updated
EU to cut gas use by 15%, make cuts mandatory in emergency
The European Commission has proposed a gas demand reduction plan to prepare the EU for supply cuts from Russia. It urged EU member states to cut gas use in Europe by 15% until next spring.
All consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas.
This voluntary reduction in gas use would apply to all member states between 1 August and 31 March next year.
However, the Commission wants to be able be able to impose a mandatory gas cut on all member states in an emergency, and is proposing a new council regulation that would enable it to declare a ‘union alert’ on security of supply, after consulting member states.
The union alert can be triggered when there is a substantial risk of a severe gas shortage or exceptionally high gas demand.
The Commission’s plan sets out measures for how gas use can be reduced, by replacing gas with other fuels, and making energy savings in all sectors, while safeguarding supply to households and essential users like hospitals and key industries.
Where possible, priority should be given to switching to renewables or cleaner, less carbon-intensive or polluting options. However, switching to coal, oil or nuclear may be necessary as a temporary measure, as long as it avoids long term carbon lock-in.
Market-based measures can mitigate the risks to society and the economy. For example, Member States could launch auction or tender systems to incentivise energy reduction by industry.
Updated
Royal Mail holds AGM and threatens split
As the Royal Mail annual meeting got under way in York, a Communication Workers Union spokesperson said:
It is pathetic that Royal Mail, a company which announced profits of £758m mere weeks ago, is now pleading poverty and threatening fragmentation unless they get their way.
Our members are committed to growing Royal Mail as a high quality public service - they deserve a decent pay rise.
Royal Mail reported today that it is losing £1m a day and has threatened to split if it cannot achieve “significant operational change”, as it faces what could be the biggest strike of the summer.
About 115,000 postal workers who are members of the CWU were balloted in recent weeks and voted 96.7% in favour of strikes, on a turnout of 77%. They are demanding a bigger pay rise than the 2% they have been awarded by Royal Mail. The company is offering a further pay rise of 3.5% but only if the union agrees to a series changes.
The union’s general secretary Dave Ward said yesterday that it would give the company “another opportunity to come back to the negotiating table” but if a deal could not be reached, the CWU would notify Royal Mail of industrial action. If they go ahead, the strikes are expected to take place in August.
Ward added that the vote for strike action was “also a vote of no confidence in Royal Mail’s CEO and board, who should seriously consider their futures” at the company’s annual meeting.
Dave Ward, general Secretary of the Communication Workers Union. Photograph: James Manning/PA
Updated
British gas prices rise as demand rises amid lower wind speeds
British gas prices are rising, with traders reporting high gas demand due to expectations of lower output from wind farms.
The British day-ahead contract rose 29%, or 56p, to 250 pence per therm while the within-day contract advanced 31%, or 58p, to 245p per therm.
Analysts at Refinitiv said:
Wind speeds are dropping below seasonal norms over the second half of this week in north west Europe.
Britain’s gas system is undersupplied by 17m cubic metres, National Grid data showed.
In the Dutch market, prices rose slightly as the market awaited the restart of Russian gas flows to Europe via the Nord Stream 1 pipeline tomorrow, following maintenance work.
The Dutch August contract reached €162.50 per megawatt hour, up 0.25%, while the day-ahead contract rose 4.2% to €158 per megawatt hour.
Victoria Scholar, head of investment at interactive investor, has looked at the consumer price inflation figures and what they mean for interest rates.
Transport made the largest upward contribution to the change in the CPI annual inflation rate, with a rise in motor fuels offsetting a decline in second-hand car prices. Food and non-alcoholic beverages along with restaurants and hotels also pushed inflation higher.
It was only last July that inflation was comfortably sitting at the Bank of England’s 2% target. The sharp ascent over the last 12 months has seen inflation come close to double digits with the expectation that price levels will push higher still before coming back down. It looks like the central bank could carry out a 50-basis point hike at its next meeting in August, which would be the largest increase since 1995, following the ECB this week - which could also increase interest rates by half a percentage point on Thursday.
With price levels in the UK spiralling out of control and wages struggling to keep apace, the biggest risk right now is that the Bank of England fails to act aggressively enough, and inflation becomes entrenched.
UK house prices rise by 12.8% in May
Other data from the Office for National Statistics released this morning shows house prices across the UK rose at an annual rate of 12.8% in May, up from 11.9% in April.
- The average UK house price was £283,000 in May, which is £32,000 higher than this time last year.
- Average house prices increased over the year in England to £302,000 (13.1%), in Wales to £212,000 (14.4%), in Scotland to £188,000 (11.2%) and in Northern Ireland to £165,000 (10.4%).
- London continues to be the region with the lowest annual growth at 8.2%.
UK average house prices increased by 12.8% in the year to May 2022, up from 11.9% in April 2022 https://t.co/AUdw3VJrDV
— Office for National Statistics (ONS) (@ONS) July 20, 2022
Pound stabilises versus dollar, euro
On the markets, the pound has stabilised against the dollar and the euro after hitting a two-week low against the euro, following a rise in UK inflation to a fresh 40-year high of 9.4%.
The data prompted expectations that the Bank of England will opt for a bigger half-point rate hike at the next meeting in August to combat high inflation.
Sterling edged up 0.1% versus the dollar to $1.2009 and was flat against the euro at €1.1728.
News round-up
Let’s have a look at today’s other news.
Britons could cut their annual energy bills while slashing their carbon emissions and boosting the price of their home, research has shown.
A study by WWF and ScottishPower has found that installing green technologies could reduce energy bills by up to £1,878 a year and cut home carbon emissions by more than 95% over the lifetime of their installation.
Amazon’s core UK division was handed a tax credit of just over £1m last year by HM Revenue and Customs despite the online retailer’s profits soaring by almost 60% to £204m.
The tax benefit was part of €1bn (£850m) in tax credits provided to Amazon by governments across Europe, up from €56m a year before, according to accounts filed for the US company’s Luxembourg-based division.
Amazon’s losses across Europe skyrocketed by 90% to €2.1bn before the tax benefit, despite sales rising by nearly 16% to €51bn.
In over 30 years since the fall of the Berlin Wall, eastern Germans have been told several reasons why they lag behind the west: an uncompetitive industry, a lack of jobs, a shortage of young workers.
But Germany’s new government believes the formerly socialist “workers’ and peasants’ state” is missing something else: trade unions.
“We have too few collective bargaining agreements in the east, too little democracy in businesses,” Carsten Schneider, Chancellor Olaf Scholz’s appointee as federal commissioner for the east, told the Guardian in an interview. “For decades, workers in the east have been told to start queueing at the back, and it drives me crazy when I see how some of them have internalised that.”
The number of clean air zones across Europe has risen 40% since 2019, forcing older and more polluting vehicles off the road, according to new research based on EU data.
Low-emission zones (LEZs) have now been introduced in 320 European city regions, and that figure is expected to rise by more than half again, to 507, by 2025.
Manolo Blahnik, the shoe brand made famous by its celebrity fans and regular appearances in TV drama Sex and the City, says it has won a legal battle in China to use its own name, paving the way for the brand’s expansion across the country.
The British company, named after its Spanish founder, said in a statement on Tuesday that the judgment was handed down by the supreme people’s court of China last month, marking the culmination of a long-running legal battle.
There are serious questions about the long-term viability of independent film-making in Britain, the British Film Institute (BFI) has said.
Making Oscar-winning films such as The King’s Speech and Slumdog Millionaire has become all the more difficult, with “significant challenges” putting the sector on a downward trend, research shows.
A Samsung ad featuring a woman running alone at 2am has avoided a ban by the UK advertising watchdog, despite complaints that it was irresponsible after a spate of late-night attacks on women.
The TV and cinema ad for Samsung products including a smartwatch featured a woman getting up at 2am and going for a run through a large city while wearing wireless earbuds. A voiceover encouraged the idea of running at unusual hours, stating: “Sleep at night. Run faster. Push harder. Follow the herd. Not for me. I run on a different schedule. Mine.”
Netflix reported better-than-expected earnings on Tuesday night, seeing a smaller exodus of viewers than originally forecast even as the platform struggles to maintain its meteoric pandemic growth.
Though Netflix reported its second straight quarterly drop in subscriber growth, and lost 1 million viewers in the second quarter of 2022, that number was lower than the 2 million it had projected in its previous report. Shares were up 10% in after-hours trading.
Netflix’s total revenue for the first quarter of 2022 was $7.97bn, missing analysts’ expectations of $8.04bn. In a letter to investors, Netflix said generating more revenue growth is a current focus.
Twitter has won the first legal skirmish in its attempt to force Elon Musk to complete a $44bn (£36.7bn) takeover of the social media company, after a judge ruled that a trial will take place in October.
Royal Mail reports loss as it faces strikes
Royal Mail has reported an adjusted operating loss of £92m, falling revenue and lower levels of parcel deliveries between April and June, as it faces what could be the biggest strike of the summer, reports my colleague Joanna Partridge.
Thousands of postal workers who are members of the Communication Workers Union (CWU) have voted in recent days in favour of industrial action over demands for higher pay.
Deliveries of items bought by online shoppers and Covid test kits have tumbled over the past three months compared with a year earlier, the company said, contributing to a 11.5% fall in revenue, combined with the long-term decline in deliveries of letters.
Royal Mail said it had worked to reduce its variable labour costs, by cutting back on overtime and the use of temporary workers, but said it had not been able to cut costs quickly enough to match the lower volumes of parcels and letters.
The company is holding its annual meeting at 11am in York today.
Back to UK inflation. Here’s some reaction from analysts. Paul Dales, chief UK economist at Capital Economics, said:
There are some encouraging signs that the upward pressure on underlying inflation from global factors has started to ease. But as it is being replaced by stronger upward pressure from domestic factors and as CPI inflation will probably still rise from 9.4% in June to 12.0% in October, we still think the Bank of England will raise interest rates from 1.25% to 3.00% even when the economy is in recession.
Economists at Daiwa said:
So, we expect core inflation to rise back firmly above 6.0% year-on-year over the next few months. And with household energy bills to be hiked again in October, headline inflation is currently set to peak above 10.5%Y/Y, and remain above 10%Y/Y at least until January before falling back over subsequent months.
With yesterday’s data highlighting that the labour market remains tight, no surprise therefore that BoE Governor Bailey yesterday evening confirmed that a 50bps hike in Bank Rate will be discussed by the MPC in August, and that a programme of active Gilt sales is likely to be underway from the autumn.
@JuliaKollewe https://t.co/LqxPJ4MAGN
— National Institute of Economic and Social Research (@NIESRorg) July 20, 2022
Updated
EU to set out plans for gas cuts
Meanwhile, the European Union will set out emergency plans on Wednesday to reduce gas demand within months, warning countries that without deep cuts now they could struggle for fuel during winter if Russia cuts off deliveries, Reuters reports.
Europe is racing to fill its gas storage ahead of winter and build a supply buffer in case Moscow further restricts supplies in retaliation for European support for Ukraine in its war with Russia. Russia’s Gazprom has already halted deliveries to some EU states.
The European Commission will urge countries to prepare for possible further cuts by slashing gas use. A draft of the EU plan, seen by Reuters, would propose a voluntary target for countries to cut their gas demand over the next eight months, which could be made legally binding in a supply emergency.
EU officials said the target would be for a 10-15% cut in gas use.
The proposal, which could change before it is published, would need approval from EU countries who are largely responsible for their own energy policies.
There has been resistance from some countries who feel their contingency plans do not need a boost from Brussels.
“We are against imposing mandatory reduction targets,” Polish climate minister Anna Moskwa said last week. Poland has filled its gas storage to 98% of capacity after Russia halted gas deliveries to the country in April.
But EU officials say it is crucial to act now, rather than wait to react if Russia does cut supply.
The draft document said a full Russian gas cut, combined with a cold winter, could cut average EU GDP by 0.9-1.5% if countries had failed to prepare.
It suggested measures to curb gas use, including government tenders for industry to receive compensation for using less gas. Governments should also decide the order in which they would force industries to close in a supply emergency, it said.
Gas deliveries are due to restart through Russia’s Nord Stream 1 pipeline to Germany on Thursday, after annual maintenance.
There have been fears among governments that flows will not restart, which would heighten a gas crisis that has sent consumer bills soaring. Sources told Reuters that flows would likely resume, but at below full capacity.
European shares lifted by relief over expected resumption of gas flows from Russia to Europe
European shares have followed in the footsteps of Asian markets and opened higher, lifted by relief over the expected resumption of gas flows from Russia to Europe tomorrow. European markets are trading near six-week highs.
The FTSE 100 index in London is 46 points ahead, or 0.6%, at 7,341, a three-week high, as investors are betting on a bigger (half-point) interest rate hike at the Bank of England’s August meeting after higher-than-expected inflation figures.
France’s CAC opened nearly 0.4% higher, and Germany’s Dax, Italy’s FTSE MiB and Spain’s Ibex rose about 0.3%.
Bloomberg reported yesterday that Gazprom was poised to restart gas exports through its Nord Stream pipeline to Europe on Thursday at reduced capacity.
Shipments will resume when maintenance ends on Thursday, but remain below normal after the Russian gas giant declared force majeure on some European clients, the news agency quoted unnamed people as saying. Flows via Russia’s biggest link to Europe were capped at 40% of capacity before the work.
President Vladimir Putin suggested flows will restart, but warned that delays in receiving a turbine vital to supply the pipeline could lead volumes to be cut to only 20% of capacity as soon as the end of this month, when another unit is due for maintenance, Bloomberg said. The turbine was sent to Canada for repairs and held up there by sanctions.
“Only two are operating” now, he said of the turbines in televised comments to reports after a summit in Iran late Tuesday. But if the unit coming back from Canada doesn’t arrive in time to replace the one due to be sent for repairs, he warned, “just one will function, so 30 million cubic meters will be pumped per day.”
Updated
The chancellor of the exchequer, Nadhim Zahawi said:
Countries around the world are battling higher prices and I know how difficult that is for people right here in the UK, so we are working alongside the Bank of England to bear down on inflation.We’ve introduced £37bn worth of help for households, including at least £1,200 for 8 million of the most vulnerable families and lifting over 2 million more of the lowest paid out of paying personal tax.
However, Labour’s shadow chancellor, Rachel Reeves said:
The cost of living crisis is leaving families more worried every day, but all we get from the Tories is chaos, distraction and unfunded fantasy economics. Rising inflation may be pushing family finances to the brink, but the low wage spiral facing so many in Britain isn’t new.
It’s the result of a decade of Tory mismanagement of our economy meaning living standards and real wages have failed to grow.
We need more than sticking plasters to get us back on course - we need a stronger, and more secure economy.
UK inflation rises for ninth month to 9.4% – recap
Here is our full story on UK inflation. To recap, it hit a fresh 40-year peak of 9.4% last month, higher than the 9.3% expected by economists. Inflation has now risen by nine months in a row, as the cost of living crisis worsens.
Other countries have also seen big price rises, partly caused by Russia’s invasion of Ukraine, but the UK has the highest inflation rate in the G-7 group of industrialised nations.
Transport costs were the main culprit, in particular higher prices for petrol and diesel, which reached new records in June. Food prices rose at the highest rate since 2009, as milk, cheese and eggs as well as vegetables, meat and other food products such as ready meals became more expensive.
The Bank of England is forecasting that inflation will peak at 11% in the autumn, and its governor said yesterday that a bigger, half-point interest rate hike was on the table in August.
Updated
The Liberal Democrat Treasury spokesperson Sarah Olney said families and pensioners were being hammered by relentless price hikes while the government stood by.
Britain now has a Zombie government in the middle of a cost of living crisis. The country can’t wait any longer for this Conservative party to play out their horror show leadership contest.
VAT must be slashed right away to cut prices at the shopping tills and fuel pumps.
Instead, people are suffering every day from Rishi Sunak’s tax hikes and are left without any functioning government when next month’s energy price rises are announced. Britain deserves better than this.
Updated
Prices charged in restaurants and hotels rose by 8.6% in the year to June, up from 7.6% in May and the highest since August 2021. Clothing and footwear prices rose at a slower rate of 6.1%, down from 6.9% in May, but there was little evidence of the discounting that normally happens in the summer sales. The ONS said:
Prices normally fall at this time of year as the summer sales season begins, but there was little movement in 2022 and, in 2021, prices were still rising following the end of the coronavirus lockdown.
Updated
Food and non-alcoholic drinks rose by 9.8% in the year to June, the highest rate since March 2009. Milk, cheese and eggs as well as vegetables, meat and other food products such as ready meals became more expensive.
Helen Dickinson, chief executive of the British Retail Consortium, said:
Inflation continues to rise, heavily driven by rising production costs. Food prices have been sharply hit by soaring global commodity prices and the rising costs of animal feed and fertilizer, both exacerbated by the war in Ukraine. Across the board, non-food products are being impacted by haulage and shipping costs, whilst surging energy prices are making stores increasingly expensive to run.
In the face of rising pressures in supply chains and operations, retailers are doing all they can to absorb as much of these costs as possible and look for efficiencies in their businesses. Retailers are expanding their value ranges to offer the widest variety of goods to those most in need, providing discounts to vulnerable groups, and raising staff pay. Until inflation is brought to heel however, it will be a difficult road ahead for households and businesses in the UK.
Updated
Inflation: CPI 9.4% up from 9.1%, highest since Feb 1982. Last time it rose through this level July 1979. Then it stayed in double figures for 2yrs 8months.
— Paul Lewis (@paullewismoney) July 20, 2022
RPI 11.8% up from 11.7% highest since Feb 1982
CPIH which no-one uses 8.2% up from 7.9%
Rising prices for motor fuels and food made the biggest upward contributions to the inflation rate as petrol and diesel prices hit new records, the ONS said. Transport costs overall were 15.2% higher in June.
Petrol and diesel prices went up by 42.3%, the highest rate since at least 1989. Average petrol prices were 184p per litre in June, the highest on record, compared with 129.7p a litre a year earlier. The average price of diesel was also the highest recorded, at 192.4p per litre.
Updated
UK inflation hits new 40-year high of 9.4% in June
UK inflation hit a new peak of 9.4% in June, driven by higher fuel and food prices, according to figures from the Office for National Statistics.
Updated
In case you were wondering why Britain’s roads melt and its rails buckle in the heat, here’s a handy explainer.
But as the temperate has dropped by up to 10C in some areas today, heavy showers and thunderstorm predicted in parts of northern England and southern Scotland could bring new disruption.
Updated
Hewson added:
It is true that no one could have foreseen the Russian invasion of Ukraine and the effects that it has had on the global economy; the central bank’s procrastination pre-dated that when it was clear inflation was starting to become embedded. Now that we’re seeing it move into grocery prices after the latest Kantar data showed grocery prices rise by 9.9% it is becoming ever clearer that inflation is becoming much more persistent.
This is expected to manifest itself further in today’s June CPI numbers which are expected to rise from 9.1% to a new record of 9.3%, although core prices could slip back to 5.8%.
Almost half of the increase in headline CPI [consumer price index] is reflected in higher gas, electricity, and petrol prices, which accounted for over 4% of the increase in May. This is expected to continue in June, and while expectations are for a rise to 9.3%, there is a risk we could go even higher if last week’s big spikes in the US are any guide.
The picture isn’t any better on the old RPI [retail price index] measure which rose to 11.7%, while PPI [producer pice index] input prices surged to a new record of 22.1% in May, and are expected to rise further to 23%.
Introduction: UK inflation to hit new peak as fuel, food prices rise
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
As we are sweltering in the heatwave, and the barometer hit a new record of 40.2 degrees at Heathrow airport yesterday, inflation is also heating up further.
The latest official figures, out at 7am, are expected to show a rise in the headline annual rate to 9.3% in June, another record, from 9.1% in May, which was the highest since 1982. The Bank of England expects inflation to reach 11% this autumn.
Investec economist Ellie Henderson said the driving factors behind the latest pick-up in inflation are fuel costs and airline prices, as well as continued high food inflation, exacerbated by the weaker pound.
A driving factor behind this is rising fuel prices. More timely data has pointed to an over 9% gain in fuels & lubricant prices in June. We expect airline prices to also show hefty price gains in June due to higher fuel costs, with prices already under upward pressure owing to a burst in demand meeting labour shortages. Finally, given the continued conflict in Ukraine, high food price inflation is likely to have remained in June, exacerbated by a weaker sterling given the UK’s dependence on imported food products.
Looking further ahead, the energy outlook is one of, if not the, most substantial factor determining how persistent headline inflation may be. The Ofgem energy price cap will be next adjusted in October, where our utility analysts have forecasted an eye-watering 67% increase to the cap, to £3,285.
Aside from the energy outlook, recent political events add an extra layer of uncertainty as to how long ‘core’ inflation, excluding food and energy, may persist for. Many of the frontrunners to replace current PM Boris Johnson, former Chancellor Rishi Sunak aside, have promised sweeping tax cuts as part of their leadership campaign. Such tax cuts may help stimulate the economy, but also risk creating more entrenched underlying inflation.
Inflation has already wiped out wage growth. UK workers suffered a 2.8% real pay cut between March and May (adjusted for inflation and excluding bonuses) – the biggest fall since records began in 2001, according to the Office for National Statistics, as we learned yesterday.
So far, the wage-price spiral feared by central bankers has failed to materialise – instead, there is an intensifying squeeze on living standards as the gap between pay and the cost of living widens.
But Bank of England governor Andrew Bailey said yesterday that a half-point increase in interest rates was “on the table” for next month, as the central bank considers toughening its anti-inflation stance.
Michael Hewson, chief market analyst at CMC Markets UK, said:
The August meeting will also be used for the publication of the central bank’s plans to reduce the size of its balance sheet.
While this is welcome, it’s also long overdue given the central bank’s previous announcements that inflation could peak at 11% later this year. The central bank clearly needs to do something, they have been tentative and weak all year, watching the currency decline while being wishy washy about whether they have the means to combat some of the threats being posed by the current surge in prices.
Asian stock markets have advanced, extending a global rally as strong results from US companies and the expected resumption off Russian gas supply to Europe boosted confidence and eased recession fears, while the dollar is at two-week lows.
The gains were led by Japan’s Nikkei, up 2.5%, while Hong Kong’s Hang Seng rose 1.3% and the Australian market gained 1.6%. Europe’s exchanges are also expected to open higher.
The Agenda
- 1.30pm BST: Canada inflation for June (forecast: 8.4%)
- 3pm BST: Eurozone consumer confidence for July
- 3pm BST: US Existing home sales for June
Updated
