- Squeeze on household incomes tightens in November as inflation nudges up to 3.1pc
- Rise means that Bank of England governor Mark Carney will now have to write a letter to Chancellor Philip Hammond to explain why inflation has strayed more than 1pc away from its 2pc target rate
- Pound climbs to $1.3375 against the dollar following the release
- Sterling slipped against the greenback yesterday ahead of tomorrow's crucial Federal Reserve meeting
- FTSE 100 begins trading in flat territory; Carpetright suffers profits plunge, blames fragile consumer confidence
Mark Carney letter will not be released until February
I heard Carney wrote another letter recently, asking Santa for a new pen https://t.co/f9lepX2JiR— Mike van Dulken (@Accendo_Mike) December 12, 2017
Despite #UK#consumer#price#inflation rising to 3.1% in November (necessitating a "Dear Chancellor" letter from #Carney), we maintain the view that the #BOE will not raise #interest#rates again until Q4 2018— Howard Archer (@HowardArcherUK) December 12, 2017
We won't be seeing Mark Carney's letter to Chancellor Philip Hammond explaining the UK's high levels of inflation until February's inflation report which really takes the sting out of the release.
Economists expect inflation to have drifted back down to 2.8pc in the first quarter of 2018 and a letter explaining why inflation was so high in November three months later when price pressures are beginning to ease will feel a bit outdated.
As long as the recent rise in oil prices doesn't gather momentum, inflation should return back to around 2pc by the end of 2018, according to Pantheon Macro economist Samuel Tombs.
He added that this will allow the Bank of England to wait another 12 months to hike interest rates again.
*CARNEY LETTER WILL BE RELEASED ALONGSIDE FEB. INFLATION REPORT - so more of a Valentine's card than a Christmas one— WorldFirst (@World_First) December 12, 2017
Mark Carney forced to explain why inflation has broken target
Inflation hit a five-year high of 3.1pc in November as food prices and transport costs pushed up the cost of living.
Mark Carney, the Governor of the Bank of England, must now write a letter to Philip Hammond, the Chancellor, to explain why inflation is so far from the Bank’s 2pc target.
Milk price inflation has more than doubled since the summer with costs up 4.9pc on the year, while fish costs are up 9.3pc and oils up 7.4pc.
Road transport costs have risen 8.3pc and air fares failed to fall as much as is usual in November, pushing up the overall consumer price index. Package holiday prices have risen 4.9pc.
Inflation pick-up 'will not concern the MPC'
If I was Mark Carney, I'd refuse to write THE LETTER on the grounds that inflation was actually 3.09206% in November. pic.twitter.com/Meu4Vd8QK0— Andy Bruce (@BruceReuters) December 12, 2017
Breaking: Inflation at 3.1%— RANsquawk (@RANsquawk) December 12, 2017
Dear Philip Hammond
Inflation is above 3% because Brexit means Brexit!!!
That uptick in inflation looks a little alarming but the overwhelming consensus of economists believe that rising prices should now have hit their peak.
Capital Economics' senior UK economist Paul Hollingsworth believes today's pick-up will not concern the Bank of England's Monetary Policy Committee.
"It wasn’t a broad-based rise, with the largest upward contribution coming from airfares, which fell by less than they did last year. Note that core inflation held steady at 2.7%.
"Note that today’s outturn was a little higher than the MPC’s expectation of 3%, but with October’s figure being 0.2pp below its forecast, this is unlikely to worry the Committee."
Carney letter unlikely to be grovelling rate cuts apology
Dear Phillip Hammond— Shaun Richards (@notayesmansecon) December 12, 2017
Inflation is above 3% because my colleagues and I cut Bank Rate and added £60 billion to QE in August 2016. Sorry.
All the best.
Governor of the Bank of England
B45 0HF Birmingham
I wonder if Mark Carney is more of a biro or fountain pen man.
His critics will be licking their lips at the prospect of the Bank of England governor writing a letter to explain to Chancellor Philip Hammond why inflation has strayed more than 1pc from the central bank's 2pc target.
The weak pound has been the main driver of rising inflation since the EU referendum and some will blame the Bank of England's emergency rates cut in the aftermath for taking sterling a couple of notches lower.
I wouldn't expect much grovelling in Mr Carney's letter. He has defended the Bank's decision to cut rates to 0.25pc and insisted that it was necessary despite the economy's robust performance since.
Given his leanings in the EU referendum, one would imagine that the letter will mention Brexit more than a few times.
British shoppers shrug off higher food prices, with a record £4.2bn expected to be spent in the week before Christmas
British shoppers have been splurging on food and alcohol in the run up to Christmas, despite grocery inflation standing at 3.6pc – the highest level since 2013.
The 'Big Four' of Tesco, Sainsbury's, Asda and Morrisons saw collective growth of 1.9pc during 12 weeks to December 3, making this the ninth consecutive period of increasing sales for the UK’s largest food retailers, according to data by Kantar Worldpanel.
Overall, annual supermarket sales increased in value by 3.1pc during the quarter.
While the cost of groceries is rising, British shoppers are failing to tighten their belts. A record £4.2bn is expected to be rung through the tills of the UK’s biggest supermarkets in the week before Christmas Day, an increase of 3.6pc on the same week last year, according to separate figures published today by Nielsen.
Inflation jumps to fresh five-year high - key takeaways
Tomorrow's pay squeeze today. UK CPI inflation hit 3.1%y/y in November meaning price rises continue to outpace wage increases. pic.twitter.com/vKxZWPrfKy— Rupert Seggins (@Rupert_Seggins) December 12, 2017
Let's dive right into the key takeaways from this morning's surprise rise in inflation.
- The squeeze on household incomes tightened further in November after inflation jumped to 3.1pc, its highest level since March 2015.
- Bank of England governor Mark Carney will now have to write a letter to Chancellor Philip Hammond to explain why inflation has strayed more than 1pc away from its 2pc target rate.
- The ONS said rising prices on recreational and cultural goods and services pushed up prices with more expensive computer games and higher air fares lifting inflation.
- The pound received a small boost on currency markets from the release, nudging up to $1.3375 against the dollar on expectations that further tightening of monetary policy might be needed to restrain prices.
Inflation squeeze on households tightens; Carney to write letter to explain rising prices
So Mark Carney will have to get out his fountain pen and foolscap paper to explain why UK CPI inflation is at 3.1% #BoE— Shaun Richards (@notayesmansecon) December 12, 2017
UK CPI edges up to 3.1%, Core holds at 2.7%, RPI cools below 4%, PPI output bounces to 3%, PPI Input jumps to 7.3% #gbp— Mike van Dulken (@Accendo_Mike) December 12, 2017
The squeeze on UK consumers tightened further in November after inflation nudged up to 3.1pc, its highest level in five years.
The figures mean that Bank of England governor Mark Carney will now have to write a letter to Chancellor Philip Hammond to explain why inflation has strayed more than 1pc away from its 2pc target rate.
Inflationary pressures will still put pressure on the economy
Some key inflation data to start a very rich week of insight with the UK CPI and RPI coming out in 10 minutes.— John Netto (@JohnNetto) December 12, 2017
Don't get the party poppers out just yet consumers.
While consumers will get some relief from falling inflation last year, the squeeze is expected to continue to put pressure on incomes.
Last week's services PMI, in which selling prices rose at their fastest rate since February 2008, suggests that inflationary pressures will remain strong and the Bank of England expects inflation to ease at a painfully slow pace.
CMC Markets analyst Michael Hewson gave this preview of today's key release:
"Today’s November CPI numbers are expected to come in unchanged at 3%, in line with the Bank’s inflation forecasts, but it wouldn’t surprise if we did pop our heads up above 3%, prompting the Governor to have to put pen to paper. November has seen a significant rise in crude oil prices which in turn has seen petrol prices rise at the pump.
"Core prices are also expected to remain unchanged at 2.7%, which if confirmed would increase expectations that the worst is over for headline inflation.
"The jury continues to remain out on this expectation given last week’s PMI numbers which showed that firms hiked prices at their fastest rate since 2008, and this could also be reflected in the latest PPI input numbers, which are expected to show an increase to 6.7% from 4.6% ."
Inflation set to hit peak in November and wage growth could also ease the strain on incomes
It seems that Bank of England governor Mark Carney will be leaving the letter he is required to write to Chancellor Philip Hammond to explain why inflation has strayed more than 1pc away from the central bank's 2pc target tucked away safely in his top drawer.
Economists are forecasting inflation to remain at 3pc in today's reading for November and the Bank of England expects inflation to have peaked in the last two months.
There could be even more good news for the governor tomorrow. Wage growth (including bonuses), which has stubbornly lagged behind inflation, is expected to climb to 2.5pc and ease the pinch on incomes.
Carpetright boss warns of 'fragile' consumer confidence after profits plunge
The boss of Carpetright has warned of “fragile” consumer confidence and “intensified competition” as the retailer revealed its interim profits had been all but wiped out.
Revenues at Britain’s biggest carpet seller grew 2.6pc in the 26 weeks to October 28, as a 20pc boom in overseas sales offset a 0.8pc drop in the UK.
But pre-tax profits plunged 93pc to just £300,000 after higher staff costs, a bed clearance sale and discounts in its 'rest of Europe' business weighed on the bottom line.
Chief executive Wilf Walsh said: "The first half has undoubtedly been challenging. Consumer confidence remains fragile and we continue to manage the impact of intensified competition.”
The retailer has faced fierce competition of late from the fast-growing Tapi, founded by Martin Harris, the son of Carpetright’s founder.
Agenda: Inflation squeeze on UK households expected to have hit its peak
The squeeze on household incomes caused by high inflation is expected to have hit its peak in November as the weak pound’s effect slowly begins to fade out of the figures.
Economists forecast that CPI (due at 9.30am) remained at 3pc for the third consecutive month in November and the Bank of England believes that income-pinching price rises will now begin to ease.
Asia mkts are succumbing to profit taking once again in the Tech sector and recent winners on no obvious news and despite upbeat #China credit figures that underpin mood in Asia. Brent #oil breaks above $65. pic.twitter.com/RUDCU3sj3k— Holger Zschaepitz (@Schuldensuehner) December 12, 2017
Ahead of the data, the pound is steady on currency markets and has halted its slide against the dollar ahead of tomorrow’s crucial US Federal Reserve meeting, in which the central bank is expected to raise interest rates to 1.5pc amid a backdrop of robust growth and a tight labour market.
Brent crude has continued to climb after a North Sea oil pipeline was shut down, hitting a fresh two-year high above $65 per barrel.
Meanwhile, the FTSE 100 has opened in flat with Carpetright's profits plunge the sole corporate highlight. It blamed brittle consumer confidence and intensified competition for its interim profits being all but wiped out.
Interim results: Ashtead, Polar Capital Technology Trust
Trading statement: Balfour Beatty, Drax, NCC
Economics: Inflation data (UK), House price index (UK), PPI (US)