Time for a recap

Britain has been given some relief from the spectre of inflation, after the cost of living eased last month.

The UK consumer prices index only rose by 2.5% in March, down from 2.7% in February. That’s good news for households, as wages rose by 2.8% per year in the last three months.

The Office for National Statistics said the drop in inflation was due to weaker-than-usual price rises for women’s clothing, and the lack of new duties on alcohol and tobacco also helped (because the budge has been moved to the Autumn).

Here’s the full story:

Britain’s Retail Price Index rose by 3.3% - meaning that student loans will rise by up to 6.3% from September.

The government, though, says relatively few people will earn enough to be affected by the change.

Economists are split over whether falling inflation will deter the Bank of England from raising interest rates next month.

The International Monetary Fund has warned that global debt levels are now higher than before the 2008 crisis, as it urges governments to get a grip.

America, though, is on track for higher borrowings thanks to Donald Trump’s tax cuts:

The Fund also warned that the world economy faces a bumpy road, with risks of a downturn rising.

The slowdown in London’s housing market has driven prices down, year-on-year, for the first time since 2009.

Oil prices have hit a three-year high, thanks to falling stocks and reports that Saudi want prices to head higher, perhaps to $100.

In the City, the FTSE 100 is up 88 points - or 1.2% - its highest level since late February.

That’s probably all for today.

Newsflash: Oil has hit a new three-year high, as new figures show a surprise fall in US energy stocks.

Brent crude has jumped over 2% to $73.30, the highest level since November 2014. US crude oil has also risen sharply, to $68.48.

The surge came after America’s Energy Information Administration reported that crude supplies fell by 1.1 million barrels last week.

Oil was also boosted by speculation that Saudi Arabia is keen for crude to rise to $80 or even $100 per barrel.

Reuters reported:

Over the past year, Saudi Arabia has emerged as OPEC’s leading supporter of measures to boost prices, a change from its more moderate stance in earlier years. Iran, once a keen OPEC price hawk, now wants lower prices than Saudi Arabia.

Industry sources have linked this shift in Saudi Arabia’s stance to its desire to support the valuation of state oil company Aramco ahead of the kingdom’s planned sale of a minority stake in an initial public offering....

“We have come full circle,” a separate high-level industry source said of the change in Saudi thinking. “I would not be surprised if Saudi Arabia wanted oil at $100 until this IPO is out of the way.”

More here: Exclusive: OPEC’s new price hawk Saudi Arabia seeks oil as high as $100 - sources

Newsflash: The IMF has issued a stark warning that country’s need to tackle their debt levels, before the next crisis strikes.

From Washington, our economics editor Larry Elliott reports:

The global economy is more deeply indebted than before the financial crisis and countries need to take immediate action to improve their finances before the next downturn, the International Monetary Fund has said.

The IMF said a prolonged period of low interest rates had stimulated a build-up of debt worth 225% of world GDP in 2016, 12 points above the previous record level reached in 2009.

China was responsible for much of the increase, the IMF said, but noted that developed, emerging market and low-income countries all now looked vulnerable.

The Washington-based institution used its half-yearly fiscal monitor to single out the US for particular criticism, saying that Donald Trump’s fiscal stimulus – a package of tax cuts and spending increases – was leading to a bigger budget deficit at a time when it should be on the way down.

More here:

Over in Washington, the International Monetary Fund is warning that the world’s financial system faces a ‘bumpy road’.

In its new Global Financial Stability Report (GFSR), the IMF says that the short-term risks have risen, thanks to rising geopolitical tensions and fears of a trade war.

...and there’s even a (small) danger that the entire global economy suffers a contraction in the medium term.

The Fund says:

Given current financial conditions, risks to financial stability and growth are high over the medium-term. This reflects the fact that recent years of low interest rates—needed to support economic growth—have provided an environment in which vulnerabilities have been building. These vulnerabilities could exacerbate the next economic downturn and could also make the road ahead bumpy.

The IMF’s concerns include:

• Weaker credit quality: as companies with more dubious credit records have borrowed heavily in the market
  
• External debt in emerging-market and low-income countries: the ultraloose monetary conditions in advanced economies sent a flood of funds into the developing world, and there could be turbulence if it flows out again.
  

The Fund is also worried about the rise of crypto assets such as bitcoin, saying they could destabilise the global economy unless regulators are alert:

Some of the technologies behind these assets could make financial market infrastructures, such as payment systems, more efficient. But they have also been afflicted by fraud, security breaches, and operational failures—and have been associated with illicit activities.

While the limited size of crypto assets suggests they currently pose little risk to financial stability, risks could grow if their use became more widespread without appropriate safeguards.

Today’s inflation report is bad news for Britain’s students - and anyone paying off a student loan.

That’s because the UK’s Retail Prices Index, another inflation measure, is used to calculate the repayment rate on student debt.

The system uses a sliding scale -- those earnings less than £21,000 per year are charged RPI, then there is a sliding scale up to RPI +3% (6.1%) where income is £41,000 or more.

Current students are also charged RPI +3% on their loans.

RPI rose by 3.3% in March - high than the 3.1% recorded in March 2017.

So, the interest rate on student debt is going to be as much as 6.3% from this autumn (up from 6.1%). That’s eye-wateringly steep, given Bank of England base rate is just 0.5%.

It’s a complicated situation -- only the wealthier ex-students will ever end up earning enough to clear their debts (MoneySavingExpert have a good explanation here)

The BBC’s Sean Coughlan thinks the government might intervene....

Those affected may feel aggrieved that RPI, rather than the (lower) CPI, is used. And they have a good case.

The ONS itself has ruled that RPI is flawed and over, and should not be designated as a National Statistic at all!

Paul Johnson, the well-respected head of the Institute of Fiscal Studies, says RPI is simply not up to the job:

The pound is continuing to slide, as traders ponder what this morning’s drop in inflation means for UK interest rates.

Sterling has now fallen by a whole cent against the US dollar, to $1.419. It’s also down 0.7% against the euro, to €1.147.

At the start of this week, a May rate hike looked to be nailed on. But the news that the Consumer Prices Index has fallen back towards the Bank of England’s 2% target is prompting a rethink.

Professor Costas Milas of the University of Liverpool suspects that the BoE’s Monetary Policy Committee might vote for a rate hike, to 0.75%.... but he also thinks it would be a mistake.

He tells us:

Despite the drop in inflation, I still suspect MPC members might hike.

After all they have done it in the past: From my database, MPC members voted in July 2007 for a hike (to 5.75%) despite CPI inflation ‘dropping like a stone’ by recording three (!) successive falls from 3.1% in March 2007 to 2.8% in April, to 2.5% in May and to 2.4% in June 2007!

But, they shouldn’t as my colleague Michael Ellington from Liverpool University and I show in a brand new paper (available here) that interest rate hikes are more powerful in reducing inflation when inflation exceeds 3%.

Far from a done deal next month’s decision!

However, Andrew Sentance, senior economic adviser at PwC, argues that the BoE should raise borrowing costs, as inflation is likely to remain above target this year.

Though the impact of a weakened pound appears to be dropping out of the inflation numbers, three other factors are likely to exert an offsetting upward pressure on the pace of price increases. Productivity growth remains sluggish, with GDP rising not much above the rate of employment growth. Wage increases are also picking up - and could easily reach 3%per annum in the second half of this year.

In addition, a buoyant global economy is likely to continue to push up food and energy prices, with the oil price now already above $70/barrel.

“The Bank of England should not therefore treat this latest fallback in inflation as a dovish signal for interest rate policy. The MPC’s approach has normally been to look through short-term fluctuations and focus on the longer term influences on the inflation outlook. With unemployment at its lowest level since the mid-1970s, continued UK economic growth, a strong global economy, and inflation likely to remain above-target, there is still a very strong case for a rise in interest rates to 0.75% at next month’s MPC meeting.”

So, next month’s Bank of England meeting - on 10th May - will be rather exciting....

There’s no inflation in London’s property market right now.

Instead, house prices in the capital have fallen by 1% year-on-year -- the first annual decline since 2009 (when Britain was in recession).

This makes London the only region where house prices have dropped in the last year; on average, UK house prices rose by 4.4% in the year to February.

The Office for National Statistics blames the decline on the increase on stamp duty on more expensive houses, and the long-running affordability challenge with buying a house in London.

It says:

This is the lowest annual growth in London since September 2009, when it was negative 3.2%. London has shown a general slowdown in its annual growth rate since mid-2016. The second-lowest annual growth was in Yorkshire and The Humber, where prices increased by 3.1% in the year to February 2018.

At £472,000, the average London house price is more than double the UK average (£225,000).

The drop in Britain’s inflation rate is welcome news for UK households. Many have suffered a cost of living squeeze, as wages failed to keep pace with the cost of living for the last year.

Philip Smeaton, chief investment officer at wealth manager Sanlam UK, points out that the jump in inflation last year forced many people deeper into debt:

“With inflation falling back towards the Bank of England’s 2% target and wage growth overtaking inflation for the first time in over a year, it finally looks like the squeeze on living is easing. These positive signs of a strengthening economy could be all the Bank of England needs to pull the interest rate lever in May – moving policy back towards monetary normalisation. However, the MPC should consider what impact this could have on consumer debt. Since the shock vote to leave the EU, consumers have continued to spend despite immense pressure on their pockets – meaning they have likely accumulated debt. Should too much pressure be applied through higher interest rates this could impact consumers ability to spend, which is a vital element of the UK economy.”

Alistair Wilson, Head of Retail Platform Strategy at Zurich, points out that savers have also found times tough:

“While households can breathe a sigh of relief thanks to another easing of inflationary pressures, family disposable income remains squeezed, particularly after the news that disposable income has fallen for the first time in six years. Even with the inevitable rate rise, it’s clear that more needs to be done to help make what little savings people can afford to put away, go that bit further.

This is the first time since summer 2015 that Britain’s inflation rate has fallen for two months running.

The inflationary impact of the pound’s slump, after the EU referendum, seems to be fading.

Jeremy Cook, Chief Economist at WorldFirst, explains:

“CPI is at its lowest in a year and March’s decline is the 2^nd consecutive month of weaker price rises – we haven’t seen that since August – September 2015.

The majority of the slip is courtesy of the continual pricing out of the devaluation of sterling post the EU referendum, lower clothing prices as well as idiosyncratic changes courtesy of the rescheduling of the Budget until Autumn.”

The pound is sliding, as the City of London reacts to March’s unexpectedly weak inflation figures.

Sterling has dropped by three quarters of a cent against the US dollar to $1.42.

Tat shows that traders think a May interest rate rise is now less likely.

If inflation is falling back towards the Bank of England’s 2% target, then the central bank might decide to leave borrowing costs unchanged.

NEWSFLASH: Britain’s inflation rate has fallen to 2.5%, a one-year low.

That’s down from 2.7% in February, and another sign that the cost of living crisis is easing, given that wages are currently rising at 2.8%.

The Office for National Statistics says:

The largest downward contribution to the change in the rate between February 2018 and March 2018 came from prices for clothing and footwear rising by less than they did a year ago, with the effect coming mainly from a range of items of women’s clothing.

Price movements for alcoholic drinks and tobacco also made a downward contribution to the change in the rate; this in part reflects changes to the Budget cycle that were introduced in 2017, with tax changes for tobacco being announced in November 2017 instead of March 2018.

More to follow!

A planned merger to create Britain’s biggest property company has been abandoned, in the face of UK retail gloom.

Hammerson, which owns Bicester Village and Birmingham’s Bullring, has ditched its takeover of smaller rival INTU, which owns a string of shopping centres around the UK.

Hammerson walked away after concluding that the deal was too risky, given the weakness in the UK retail sector at present.

It says:

The Board of Hammerson reassessed the proposed acquisition of Intu in light of updated information on current market dynamics in the UK. Over the last five months, the financial strength of retailers and other tenants in the UK has softened and a number of retailers have entered into administrations or CVAs, while consumer confidence has also remained subdued.

It’s an embarrassing u-turn for the company, which really ought to have spotted such problems in its own sector.

But given the recent collapse of Toys R Us and Maplin, and profit warnings at Debenhams and Mothercare, it also feels like the right decision.

Shares in Hammerson have risen by almost 3% this morning, while Intu have slumped almost 6%.

There are red faces at banknote printer De La Rue this morning, as it counts the cost of the ‘Brexit blue passport’ farrago.

De La Rue has abandoned its attempt to appeal against the decision to award the contract to print Britain’s new passports to French-Dutch rival Gemalto.

In an unscheduled announcement to the City, De La Rue hit shareholders with a profits warning - the second in a month - and revealed it is taking a £4m hit on the UK passport contract.

My colleague Angela Monaghan explains:

The company, which also makes the new polymer bank notes, warned that underlying operating profit was now expected to be in low to mid £60m range for the year to 31 March. It followed a profits warning less than month ago, when De La Rue predicted profits of between £71m and £73m.

The firm said the lower profits expectation reflected “the write off of the [about] £4m bid costs related to the UK passport tender and delays in the shipment of certain contracts in the last week of the period”.

Shares in De La Rue have fallen 5% in early trading.

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

Inflation is centre-stage today as we find out how the cost of living changed in the UK and the eurozone last month.

Britain’s consumer prices index is tipped to come in around 2.7% in March, matching February’s reading and away from January’s 3% peak.

If so, that would confirm that the cost of living squeeze is easing - yesterday we learned that UK wages rose by 2.8% in the last quarter.

The data may also influence the chances of the Bank of England raising interest rates next month, which has already driven the pound to 22-month highs yesterday.

Royal Bank of Canada’s analysts predict that inflation might actually drop to 2.6% today, given the recent easing in petrol prices.

They add:

The recently announced price increases by British Gas, of 5.5% for both gas and electricity, don’t take effect until the end of May so won’t have any impact on the forthcoming release, however, in the second half of 2018, factoring in this utility bill hike will add an estimated 0.05-0.1ppts to annual CPI rates.

It remains to be seen whether other energy providers follow British Gas, but in any case it reaffirms expectations that inflation will remain above the 2% target into 2019.

Inflation is rather lower in the eurozone, of course. The annual euro area consumer prices index is expected to remain at 1.4% for March, although prices probably picked up during the month.

Jasper Lawler of London Capital Group explains:

Today’s inflation data from the eurozone could show signs of a pickup having been lacklustre for the past year. Whilst CPI is forecast to be 1.4% on an annualised basis, on a monthly basis an uptick to 1% from 0.2% is forecast.

Weak eurozone inflation is great for consumers in the region, of course, but it could also make it harder for the European Central Bank to end its massive money-printing Quantitative Easing stimulus programme this autumn.

The International Monetary Fund’s Spring Meeting is continuing in Washington; two new reports on the state of the global economy will be released later.

Plus, the Bank of Canada is setting interest rates today; it’s likely to leave borrowing costs unchanged at 1.25%.

Here’s the agenda

• 9.30am BST: UK inflation data for March
  
• 10am BST: Eurozone inflation data for March
  
• 1.30pm BST: IMF publishes its new Global Financial Stability Review
  
• 2.30pm BST: IMF publishes its new Fiscal Monitor report
  
• 3pm BST: Canadian interest rate decision