October 18th 2023

UK inflation sticks at 6.7%

Newsflash: UK inflation was unchanged at 6.7% in September, matching August’s reading, and dashing hopes of another fall.

The news that prices rose at the same pace last month halts months of progress towards easing the pressure on households.

It leaves Inflation over three times above the Bank of England’s target of 2%.

Annual inflation was unchanged in September 2023:

Consumer Prices Index including owner occupiers’ housing costs rose by 6.3% in the 12 months to September, unchanged from August
Consumer Prices Index (CPI) rose by 6.7%, unchanged from August.

https://t.co/0N7k3O1qRN pic.twitter.com/2AciOLbg8d

— Office for National Statistics (ONS) (@ONS) October 18, 2023

More to follow…..

Sterling has risen a little against the US dollar this morning, after UK inflation failed to fall as hoped.

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The pound has gained a fifth of a cent, to $1.22.

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Underlying UK inflation has fallen slightly.

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Core CPI (which strips out energy, food, alcohol and tobacco) rose by 6.1% in the 12 months to September, down from 6.2% in August.

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That may seem irrelevant to a family struggling to make ends meet – as food and energy are essential purchases.

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But, it’s a sign that inflationary pressures could be easing, which is what the Bank of England is looking to see.

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Annual goods inflation fell slightly from 6.3% to 6.2%, but services inflation rose from 6.8% to 6.9%.

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This chart shows how UK inflation remains below its peak of 11.1% set last October.

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But prices are still rising sharply faster on an annual basis than three years ago – CPI inflation was just 0.5% in September 2020.

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Rsing petrol prices prevented UK inflation falling from August’s 6.7%, as City economists had hoped.

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The Office for National Statistics says the largest downward contributions to the monthly change in inflation came from food and non-alcoholic beverages, where prices fell on the month for the first time since September 2021.

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Furniture and household goods prices rose by less than a year ago.

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However, rising prices for motor fuel made the largest upward contribution to the change in the annual rates – keeping inflation at 6.7% in September.

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The average price of petrol rose by 5.1p per litre between August and September to stand at 153.6p litre in September, the ONS says.

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Similarly, diesel prices rose by 6.3p per litre to 157.4p per litre.

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Newsflash: UK inflation was unchanged at 6.7% in September, matching August’s reading, and dashing hopes of another fall.

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The news that prices rose at the same pace last month halts months of progress towards easing the pressure on households.

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It leaves inflation over three times above the Bank of England’s target of 2%.

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Annual inflation was unchanged in September 2023:

▪ Consumer Prices Index including owner occupiers’ housing costs rose by 6.3% in the 12 months to September, unchanged from August
▪ Consumer Prices Index (CPI) rose by 6.7%, unchanged from August.

➡ https://t.co/0N7k3O1qRN pic.twitter.com/2AciOLbg8d
— Office for National Statistics (ONS) (@ONS) October 18, 2023

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More to follow…..

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While we await the latest UK inflation report (due in 10 minutes), there is encouraging economic news from China this morning.

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China’s gross domestic product grew 4.9% year on year in the third quarter, beating market expectations.

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Growth was boosted by a jump in retail sales growth, as Beijing steps up support for the world’s second-biggest economy.

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Stephen Innes, managing partner at SPI Asset Management, says:

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China’s economic recovery showed mild momentum in the third quarter, posting a 1.3% growth from the previous three months.
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This growth suggests a modest improvement in the Chinese economy. However, there are ongoing calls for increased policy support to maintain consistent growth, as there are concerns about the sustainability of the recovery.
\n
Chinese authorities have implemented various measures to support economic growth, particularly in response to challenges from the property market and weak domestic demand. Focusing on policy support will likely continue as China seeks to stabilize its economy.
\n

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⚡#China GDP data:
Q3 GDP YoY +4.9%[Est.+4.4%; Q2:+6.3%]
Q3 GDP QoQ +1.3%[Est.+1.0%;Q2:+0.8%]
Urban Unemployment 5.0%[Prev. 5.2%]
Sept. Retail sales 5.5% y/y[Est.4.9%]
Sept. industrial growth 4.5% y/y[Est.4.3%]#EconTwitter 🇨🇳
1/ Thread#EconTwitter 🇨🇳 pic.twitter.com/yCiz80UioB
— CN Wire (@Sino_Market) October 18, 2023

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Today’s inflation reading could be important in calculating how much benefits payments will increase next year.

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It could also influence some tax increases, such as business rates.

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PA Media explains:

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Inflation-linked benefits, such as universal credit, and tax credits, are expected to rise in April next year by the rate of CPI inflation from this September.
\n
A higher-than-expected rate of inflation is therefore likely to see increased costs for the Treasury.
\n
Nevertheless, this outcome could also result in higher tax revenues, as some taxes are tied to the inflation rate for the month.
\n

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

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We’ll learn today if the UK’s cost of living squeeze is easing, when the latest inflation data is released at 7am this morning.

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Economists predict that inflation fell last month, with the Consumer Prices Index forecast to fall to around 6.6% in September, down from 6.7% in August.

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That would be the lowest annual inflation rate since February 2022, but still leave prices rising more than three times faster than the UK’s 2% target.

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Food price inflation, which soared after the Ukraine war began, is expected to have slowed, as the price of some products, such as butter and milk, dropped recently.

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Clothing is also expected to contribute to the lower inflation rate, with an increase in discounting from shops to stimulate more sales.

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But higher fuel prices could have an upward impact on inflation, following the rise in prices at the pumps.

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A fall in inflation today could deter the Bank of England from raising interest rates at its next policy meeting in November, after it paused its rate rises in September.

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Michael Hewson of CMC Markets says the Bank was right to leave rates at 5.25% last month, so it can assess the” pass-through” of its previous 14 rate hikes:

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It’s about time this penny dropped given the challenges facing the UK economy and its good that the MPC has finally woken up to this, although there are differing views amongst MPC members of how much has trickled down with arch dove Swathi Dhingra arguing that only 25% of the impact has been felt.
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UK CPI Preview: Inflation set to extend downward trend in September, denting prospects of further rate hikes – by @FXstreetNewshttps://t.co/gTF8DmFRau

#Inflation #EconomicIndicator #UnitedKingdom #GBPUSD
— FXStreet News (@FXStreetNews) October 18, 2023

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Data yesterday showed that basic pay rose by 7.8% per year in the last quarter, meaning wages were rising faster than inflation last summer.

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The agenda

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7am BST: UK inflation report for September
9.30am BST: UK house price and rental costs indices for August
10am BST: Eurozone inflation report for September (final estimate)
Noon BST: US weekly mortgage data
1.30pm BST: US building permits and housing starts data

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Key events

Treasury minister Andrew Griffith has insisted the Government was “on track” to hit its pledge to halve inflation this year, despite CPI inflation sticking at 6.7% in September.

The economic secretary to the Treasury told Times Radio:

“At the beginning of the year we set ourselves an ambitious target to halve inflation this year. Today’s figures – flat for September – show we are on track for that.”

UK CPI inflation was 10.5% in December 2022, which suggests the government needs it to fall to 5.25% by this December to declare a win.

Pound rises after inflation sticks at 6.7%

Sterling has risen a little against the US dollar this morning, after UK inflation failed to fall as hoped.

The pound has gained a fifth of a cent, to $1.22.

Core UK inflation has dipped

Underlying UK inflation has fallen slightly.

Core CPI (which strips out energy, food, alcohol and tobacco) rose by 6.1% in the 12 months to September, down from 6.2% in August.

That may seem irrelevant to a family struggling to make ends meet – as food and energy are essential purchases.

But, it’s a sign that inflationary pressures could be easing, which is what the Bank of England is looking to see.

Annual goods inflation fell slightly from 6.3% to 6.2%, but services inflation rose from 6.8% to 6.9%.

UK inflation: the key chart

This chart shows how UK inflation remains below its peak of 11.1% set last October.

Photograph: ONS

But prices are still rising sharply faster on an annual basis than three years ago – CPI inflation was just 0.5% in September 2020.

Rising prices for motor fuel pushed up inflation

Rsing petrol prices prevented UK inflation falling from August’s 6.7%, as City economists had hoped.

Furniture and household goods prices rose by less than a year ago.

However, rising prices for motor fuel made the largest upward contribution to the change in the annual rates – keeping inflation at 6.7% in September.

The average price of petrol rose by 5.1p per litre between August and September to stand at 153.6p litre in September, the ONS says.

Similarly, diesel prices rose by 6.3p per litre to 157.4p per litre.

On a monthly basis, consumer prices rose by 0.5% in September alone, today’s inflation report shows.

UK inflation sticks at 6.7%

Newsflash: UK inflation was unchanged at 6.7% in September, matching August’s reading, and dashing hopes of another fall.

The news that prices rose at the same pace last month halts months of progress towards easing the pressure on households.

It leaves inflation over three times above the Bank of England’s target of 2%.

Annual inflation was unchanged in September 2023:

Consumer Prices Index including owner occupiers’ housing costs rose by 6.3% in the 12 months to September, unchanged from August
Consumer Prices Index (CPI) rose by 6.7%, unchanged from August.

https://t.co/0N7k3O1qRN pic.twitter.com/2AciOLbg8d

— Office for National Statistics (ONS) (@ONS) October 18, 2023

More to follow…..

China’s economy grows faster than expected in third quarter

While we await the latest UK inflation report (due in 10 minutes), there is encouraging economic news from China this morning.

China’s gross domestic product grew 4.9% year on year in the third quarter, beating market expectations.

Growth was boosted by a jump in retail sales growth, as Beijing steps up support for the world’s second-biggest economy.

Stephen Innes, managing partner at SPI Asset Management, says:

China’s economic recovery showed mild momentum in the third quarter, posting a 1.3% growth from the previous three months.

This growth suggests a modest improvement in the Chinese economy. However, there are ongoing calls for increased policy support to maintain consistent growth, as there are concerns about the sustainability of the recovery.

Chinese authorities have implemented various measures to support economic growth, particularly in response to challenges from the property market and weak domestic demand. Focusing on policy support will likely continue as China seeks to stabilize its economy.

#China GDP data:
Q3 GDP YoY +4.9%[Est.+4.4%; Q2:+6.3%]
Q3 GDP QoQ +1.3%[Est.+1.0%;Q2:+0.8%]
Urban Unemployment 5.0%[Prev. 5.2%]
Sept. Retail sales 5.5% y/y[Est.4.9%]
Sept. industrial growth 4.5% y/y[Est.4.3%]#EconTwitter
1/ Thread#EconTwitter pic.twitter.com/yCiz80UioB

— CN Wire (@Sino_Market) October 18, 2023

Analysts at RBC Capital Markets predict UK inflation only fell slightly last month, to 6.6% from 6.7% in August.

They point out that there are a wide range of estimates, adding:

Within the detail, the main focus will be services inflation, which surprisingly fell from 7.4% to 6.8% in the August report, and is one of the key factors the BoE is monitoring for evidence it has tightened enough (along with earnings growth and labour market tightness).

Rate expectations slipped slightly after yesterday’s slightly softer earnings data with SONIA forwards pricing in around 12bp of further tightening spread over the next three MPC meetings.

Today’s inflation reading could set benefit increases

Today’s inflation reading could be important in calculating how much benefits payments will increase next year.

It could also influence some tax increases, such as business rates.

PA Media explains:

Inflation-linked benefits, such as universal credit, and tax credits, are expected to rise in April next year by the rate of CPI inflation from this September.

A higher-than-expected rate of inflation is therefore likely to see increased costs for the Treasury.

Nevertheless, this outcome could also result in higher tax revenues, as some taxes are tied to the inflation rate for the month.

Introduction: UK September’s inflation report in focus