Inflation slows to 6.8%, and PM Rishi Sunak says "the plan is working".

Annual inflation slowed again in July 2023. The Consumer Prices Index rose by 6.8%, its lowest point since February 2022, and down from 7.9% in June. Although now considerably further away from October's 41-year high of 11.1%, it still remains far above the Bank of England’s (BoE) 2% target. The Office for National Statistics (ONS) said a drop in gas and electricity prices was the biggest driver in the drop, and that food price inflation also eased, with a noticeable drop in the cost of cereals, milk and bread. The price of whole milk fell almost 6% and low fat milk by 3.2% the ONS said, while annual inflation regarding bread and cereals fell to 14.4% from 16.7% in June. Overall, food prices rose by 14.9% in the year to July, down from 17.3% in the year to June. Clothing and footwear prices also fell by more last month than in July 2022 because the poor weather led to more aggressive price cutting by retailers looking to sell summer stock. However, these gains were offset by the summer tourism season, with associated rises in the price of air transport and holiday accommodation which helped keep inflation high, the ONS noted. Core inflation, which excludes energy, food, alcohol and tobacco, was unchanged from June at 6.9%, as “the falling cost of goods (was) offset by higher service prices,” the ONS said. Being an indicator watched closely by the BoE, the fact core inflation is unchanged has led analysts to conclude a further interest rate rise is likely next month.

Prime Minister Rishi Sunak responded to the fresh inflation statistics on X, formerly known as Twitter, saying: “As Prime Minister I am determined to build a better economy and a better country for you, your children and your grandchildren. That starts with tackling inflation. And the news this morning shows that the plan is working. If we stick to the plan I’ve set out, we’ll get it done.” Chancellor Jeremy Hunt said July's inflation figures showed the action the Government had taken "is working" while warning that "while price rises are slowing, we're not at the finish line". He reiterated his intention to halve inflation by the end of this year. Shadow Chancellor Rachel Reeves said inflation in Britain remained "higher than many other major economies". "After 13 years of economic chaos and incompetence under the Conservatives, working people are worse off - with higher energy bills and prices in the shops," she said. 

The FTSE 100 hit a one-month low yesterday on the back of the news that basic wages grew at a record pace and a rise in sterling. The blue-chip index declined 1.6% by close, although Marks & Spencer was a standout winner as stock leapt 8.3% after the retailer raised its profit outlook on the basis its latest turnaround strategy is delivering.

Regulated train fares in England will again rise below the rate of inflation next year, the Government said yesterday, without saying that at what level increases would be set. A Department for Transport (DfT) spokesman said only that the Government would "continue to protect passengers from cost of living pressures". Previously, before covid and the cost of living crisis, regulated rail fare increases were based on the Retail Price Index (RPI) rate of inflation from the previous July, plus 1%. This year however, the Government increased fares by just 5.9%, well below July 2022's RPI figure of 12.3%, although that was still the largest increase since 2012, according to regulator the Office of Rail and Road. The increases, when they come, will also be delayed again until March 2024, rather than in January, as used to be the case pre-covid. Regulated fares cover about 45% of fares, including season tickets on most commuter journeys, some off-peak return tickets on long-distance journeys and anytime tickets around major cities. Neither the Scottish or Welsh governments have announced their policies regarding rail fare rises next year yet.

The Competition and Markets Authority published its official ranking of bank account customer satisfaction yesterday, revealing that digital lenders Monzo and Starling have beaten their high street rivals, coming first and second respectively in the provision of both retail and business accounts.  Virgin Money, Royal Bank of Scotland and TSB were judged to be the worst three current account providers, while HSBC UK, the Co-operative Bank and Virgin Money languished at the bottom of the business account provision ranking.

Insurance group Admiral has revealed it hiked its prices by 20% in the first half of the year to stave off the worst impact of inflation on its profits margins, and has today posted a 4% increase in profits to £298m in the six months to the end of June, despite a 7% dip in customer numbers over the latest quarter. Following the results, Aviva also announced it is increasing its dividend by 8% to 11.1p per share.

Harrods has bounced back from its pandemic slump and appears to be defying the cost-of-living crisis. Its £135.8m profit for the year to 28^th January 2023, reported this morning, surpasses pre-covid levels. The company, famous for its iconic store in London’s Knightsbridge, made just £20.7m in 2021-22. In 2019-20 it reported a profit of £130.5m.

Russia hiked its interest rate again yesterday, in what the Daily Mail calls “a desperate bid to prop up its crumbling currency”. The rouble plunged to its lowest level against the US dollar for a year and a half on Monday, triggering a rebuke from President Vladimir Putin’s economic adviser and sparking an emergency meeting at Russia’s central bank. The outcome of that meeting was that governor Elvira Nabiullina and her officials agreed a 3.5% hike from 8.5% to 12%. The central bank previously raised rates to 20% after the invasion of Ukraine to support the rouble, but then cut rates to 7.5% as the currency recovered on the back of rising oil prices.