Inflation falls again
The business news that matters
Hello and welcome to the latest edition of Off to Lunch…
There is upbeat news on inflation today. The latest data from the Office for National Statistics shows that the consumer price index fell to 6.7 per cent in August, down from 6.8 per cent in July.
This data has confounded the expectations of economists, who had forecast that inflation would rise again in August. The government had even warned of a “blip” in the battle to get inflation down due to rising petrol and diesel prices. However, core inflation - which excludes energy, food, alcohol and tobacco, items prone to short-term fluctuations - fell to 6.2 per cent in August, down from 6.9 per cent in July.
The graph below from the ONS shows how inflation has moved over the last 10 years. The consumer price index is the light-blue line. The dark-blue line is CPI including the cost of housing, and the black line is the cost of housing…
You can find all the ONS data on inflation here
The data has been released at a vital moment for the Bank of England. The Bank’s monetary policy committee is meeting to debate whether to increase interest rates again and they will announce their decision tomorrow. The City has been betting that the Bank will increase rates from 5.25 per cent to 5.5 per cent. However, the fact inflation has fallen again, and that other data suggests the UK economy is slowing, means that another rate rise is now less likely. The pound is down 0.25 per cent against the dollar today because of this. You can see from the graph below how it notably fell when the inflation data was released…
A collection of business lobby groups are encouraging the Bank to hold-off on further rate rises. For example, Martin McTague, national chair of the Federation of Small Businesses, said:
“It’s fair to say small firms will be relieved there wasn’t a rise in inflation, as some had predicted, but this result is far from the substantial fall they were hoping for.
“The core inflation drop is good news, although the fact that fuel contributed the most on the upward side to inflation is a concern. If pump prices rise further, this will have knock-on effects to almost all sectors.
“With signs that interest rate rises are starting to bite, tomorrow’s base rate decision by the Bank of England has to be the peak for rates, one way or another. Leaving rates high for longer than needed will devastate the chances of an economic recovery.”
In terms of the view of economists James Smith, developed markets economist at ING, said the latest numbers on inflation “deserve a bit of caution” because a fall in services inflation was driven by cuts to the price of airfares and package holidays, which was unusual. He added:
“All of this makes tomorrow’s Bank of England meeting a much closer call. We’d already been flagging the risk that the Bank could opt to pause this week while still keeping the door open to another hike in November, and that scenario has now become more realistic. Today's downside miss on services inflation followed some slightly dovish news on wage growth last week, where there were hints that this may finally be starting to ease – or is at least reaching a peak. That same report also showed that the jobs market is cooling noticeably.
“It's a very close call, but we’re still tempted to say the Bank will follow through with a hike tomorrow. But we could get a couple more members voting for a pause, and either way a rate hike tomorrow – if it comes – is likely to be the last.”
We will have news on the Bank’s decision in Off to Lunch tomorrow
Other stories that matter…
1. Most of the UK newspapers have splashed on the same story this morning - the news that Rishi Sunak is set to delay a collection of net-zero commitments. This story was first reported by the BBC last night here. The potential measures include delaying the ban on selling new petrol and diesel cars from 2030 to 2035 and delaying the end of gas boilers. Sunak issued a statement last night (see below) and is due to make a speech later this week. This is clearly a big story and Off to Lunch will look at it in detail once the government has confirmed its plans…
2. A follow-up to the news that parts of the HS2 project could be scrapped - Helen Thomas has written in the Financial Times about how the UK has mismanaged infrastructure projects over many years, with tinkering and dithering leading to a rise in costs and reducing the benefits. Piece here
3. The economist Tyler Cowen has written an interesting piece for Bloomberg about the potential UK ban on the American XL bully dogs. The piece looks at the power of bans rather than taxation as a tool for regulation and why it is odd for an American to see a prime minister talking about dogs when local politicians would deal with the issue in the US. Piece here
4. Amazon has developed a new version of its “Just Walk Out” technology that allows customers to walk-out of a shop with clothes they want to buy without going to a till. Story here
5. The New York Times has looked at how The Tank Museum in Dorset has become the largest museum in the world on YouTube by making videos about its exhibits, opening up a new source of revenue. This is an interesting strategic pivot. You can read the piece here. Thanks to Benedict Evan’s excellent weekly tech newsletter for flagging this one. You can sign-up to that newsletter here
And finally…
Walter Isaacson’s book on Elon Musk is a must-read for anyone interested in business, tech, interesting people or just Musk himself. The book is 670 pages long including notes and the index, but Isaacson’s writing style and the chronological structure of the story have allowed me to fly through the book since it was released a week ago. Isaacson had extraordinary access to Musk over the last two years. I have seen some people say that the author is too sympathetic to Musk, but this is a man who has built multiple successful businesses and the reader is encouraged to make-up their own mind about him. There are multiple business case studies in this book and some remarkable, previously unreported, details about his life, businesses and decisions…
You can find out more about the book here
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Best
Graham