Inflation fell by 0.2 percentage points in August

By Suzanne Evans, Director, Political Insight

Inflation fell by 0.2 percentage points in August, the Office for National Statistics (ONS) says this morning. Declining fuel costs made the "largest downward contribution" to this first fall in four months, the ONS said. The consumer price index (CPI) now stands at 9.9% for the year. Economists had expected the rate to remain steady at 10.1%. Rising food prices made “the largest upward contribution” to the change in the rates, along with housing and household services (principally from electricity, gas and other fuels, and owner occupiers’ housing costs), transport (principally motor fuels), and non-alcoholic beverages.
 
Despite the unexpected fall in inflation in August, headline UK Inflation still remains at a near 40-year high, and analysts expect the Bank of England Monetary Policy Committee (MPC) to press ahead with a seventh consecutive rise in interest rates next week. The MPC will also want to prevent a wage spiral because of Tuesday’s figures showing unemployment has fallen to the lowest rate since 1974, Yahoo Finance UK explains. This means more pressure on businesses, because hiring costs will rise which, coupled with the energy bailout, could overheat the labour market and further push up prices. The MPC will meet on 22^nd September following a week-long postponement of its regular meeting following the death of Queen Elizabeth II. The base rate stands currently at 1.75%. The Bank of England has said inflation could peak at more than 13% this year.
 
The Telegraph has published interesting analysis of Britain’s current low unemployment rate, claiming that record NHS backlogs have forced an “alarming” exodus of hundreds of thousands of sick Britons from the workplace. The economic inactivity rate – those not in employment or seeking work – rose 0.4 percentage points to a six-year high of 21.7%. It is 1.5% higher than at the start of the Covid-19 pandemic. Meanwhile, the NHS waiting list has hit 6.8m and is not expected to peak until 2024. James Smith, an economist at ING, said: “Alarmingly, the number of people classifying as not working due to long-term sickness is up by almost 400,000 since late 2019, and almost 150,000 in the last two months' worth of data alone. It’s hard to escape the conclusion that this is linked to the pressures in the NHS.”
 
As UK inflation fell unexpectedly, US inflation flew in the face of all expectations to rise 0.1% in August, despite a drop in gas prices and fewer problems affecting global supply chains.  The rise to an annual rate of 8.3% sparked a sharp selloff in the US stock market, and what had been a four-day winning streak for the major indexes collapsed into the biggest daily percentage loss since June 2020 when the covid pandemic hit.  The Labor (sic) Department's consumer price index (CPI) threw cold water on hopes that the Federal Reserve could relent after September and ease up on its interest rate hikes, Reuters said. The US central bank is now expected to deliver a third 75 basis points interest rate hike next Wednesday.
 
The property market remains strong despite the record high price of a house in the UK, with the outstanding value of all residential mortgage loans up 3.8% to £1.648bn, according to figures from the Bank of England. The value of new mortgage commitments made by lenders in the second quarter of the year reached £83.9bn, a 1.7% increase over the previous quarter.
 
Research by MetLife has found that 48% of people with a mortgage worry about whether they will still be able to manage repayments due to the cost of living crisis.
 
The average UK rent has increased by £115 a month since last year, to now stand at £1,051m Zoopla says. Rent is now so high that it swallows up just over a third (34.4%) of the average income of a single earner, according to figures from the property website.  This surge is because of a severe supply and demand imbalance; the stock of homes available to rent is currently just half the five-year average, mostly because landlords are “continuing to sell properties in the face of tax and regulatory changes,” Zoopla added, while also highlighting that an increase in the number of renters staying put in their current properties in the hope of avoiding rent hikes is also a factor. The average letting agent currently has just eight homes available to rent. Zoopla says it has also seen an increase in demand for smaller properties which may be more affordable to run. “We have seen a steady reduction in the proportion of renters looking for two- and three-bed houses, and an increase in demand for one- and two-bed flats over 2021 and 2022. This trend has been accelerating in recent weeks,” Zoopla’s report said.
 
Homeware retailer Dunelm has reported record full-year results despite a "challenging" environment. In the year to 2 July, pre-tax profit jumped 32.4% to a record £209m, on total sales of £1.6bn, up 16.2% on the year. Dunelm said that while year-on-year growth benefitted from the lockdown-related store closures a year earlier, growth of 41.1% compared to 2019 shows "the pace at which the business has developed through the pandemic period". Its active customer base grew 8.5% over the year.
 
Sainsbury's has announced a £25m cost of living support package to help staff with rising costs, Yahoo Finance UK reports. Britain’s second largest supermarket chain said £20m of the funding will go towards a pay rise for 127,000 workers, while the remainder will be spent on giving staff free food. From 16 October, employees at Sainsbury’s and Argos will see their wages increase from £10 per hour to £10.25 per hour, and from £11.05 to £11.30 in London. They will also have access to "basic food items" during their shifts from the first week of October until the end of December, as well as increased discounts within the stores. “The free food will ensure that colleagues can have something to eat while they are at work and the longer and deeper discounts will help colleagues plan and manage their budgets through the autumn and in the run up to Christmas,” the company said. Sainsbury's said the extra increase would not affect the timing of the next annual pay review, which will go ahead in the new financial year. The move now brings Sainsbury’s total investment into supporting workers to around £150m.
 
FTSE 250 real estate investor Supermarket Income REIT has acquired a Tesco supermarket in Llanelli, South Wales, for a total purchase price of £66.8m. The store was developed for Tesco in 1989, and occupies a 10-acre site with an 82,046 square foot net sales area supermarket, a 16-pump petrol filling station, and 753 car parking spaces.
 
Home REIT, which helps to house homeless and vulnerable people, has bought 158 properties across England for £57.4m. The FTSE 250 company said the purchase will create a further 711 beds for those in need, bringing its portfolio total to 11,131.
 
Software company Aveva is said to be closing in on a takeover agreement with French industrial group Schneider Electric. According to Sky News, the boards of the two companies are discussing a price of more than £30-a-share for Schneider to acquire the roughly-40% of Aveva it does not already own. Banking sources told Sky a deal was expected to be struck ahead of a 21^stSeptember deadline imposed by the UK takeover watchdog. At just over £30-a-share, the deal is expected to cost Schneider around £3.5bn.
 
FTSE 100 mining giant Rio Tinto has formed a joint venture with China Baowu Steel Group to develop the Western Range iron ore project in Western Australia's Pilbara region. Rio Tinto, which will take up a controlling 54% stake in the project, will invest $1.3bn (£1.13bn) to develop the mine, with Baowu putting in an additional $700m (£607.2m).
 
Google is to face damages claims for up to €25bn (£21.69bn) because of alleged anti-competitive behaviour in its digital advertising practices, Reuters reports.  Two lawsuits are to be filed in British and Dutch courts in the coming weeks by law firm Geradin Partners on behalf of publishers, whose complaints have led to scrutiny of Google's adtech by antitrust regulators. The French competition watchdog imposed a €220m (£190.85m) fine on the company last year, and the European Commission and the UK’s Competition and Markets Authority are investigating whether Google's adtech business gives it an unfair advantage over rivals and advertisers. The British claim at the UK Competition Appeal Tribunal will seek to recover compensation for all owners of websites carrying banner advertising, including traditional publishers. A Google spokesperson said: "This lawsuit is speculative and opportunistic. When we receive the complaint, we'll fight it vigorously".

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