Graeme Wearden 

Bank of England not ruling out negative interest rates as inflation drops to 0.8% – as it happened

Rolling coverage of the latest economic and financial news, as UK central bank tells MPs it is keeping its ‘lower bound’ under review
  
  

Bank of England Governor Andrew Bailey, who says the BoE is keeping its policy tools under review amid coronavirus downturn
Bank of England Governor Andrew Bailey, who says the BoE is keeping its policy tools under review amid coronavirus downturn Photograph: Reuters

Closing summary

Time for a recap

The governor of the Bank of England has refused to rule out introducing negative interest rates in the UK. Andrew Bailey told MPs that his views have changed in the light of the coronavirus pandemic - the BoE is reassessing all its tools, as it tries to fight the worst downturn in centuries.

Bailey was speaking shortly after the UK sold government debt at negative yield for the first time. Investors effectively paid for the chance to lend to Britain -- perhaps partly because the BoE has pledged to buy the gilts under its stimulus programme.

The pandemic is pushing inflation down across the globe. In the UK, the Consumer Price Index dropped to just 0.8% last month, down from 1.5% in April - with fuel and clothing prices dropping last month.

Eurozone inflation fell to 0.3%, while in Canada the inflation rate turned negative for the first time since 2009.

The WTO warned that world trade in goods has fallen dramatically this year, as the economy contracts.

Despite this concern, global stock markets have risen today on hopes of economic recovery later this year.

And there’s deep gloom in Derby tonight as Rolls-Royce announces thousands of job cuts.

But McDonald’s has cheered some of its fans, by reopening 33 drive-through outlets.

Goodnight. GW

European market close higher

Optimism that the world economy will start to recover from the Covid-19 recession soon has lifted shares across Europe.

The main indices have closed around 1% higher tonight, as global markets hit their highest levels in 10 weeks.

  • Stoxx 600: up 3.5 points or 1.05% at 343.4
  • FTSE 100: up 64 points or 1% at 6067
  • German DAX: up 170 points or 1.5% at 11,245
  • French CAC: up 40 points or 0.9% at 4,498
  • Italian FTSE MIB: up 178 points or 1% at 17,213

Stocks are also higher in New York, with the Dow gaining around 1.7%.

Connor Campbell of Spreadex explains that investors are shrugging off rising tensions between Washington and Beijing:

The Dow Jones was keen to rebound on Wednesday, shaking off the Moderna vaccines doubts that plagued it on Tuesday.

Rising close to 400 points, the Dow returned to 24600, pretty much reversing the losses incurred last night thanks to some solid earnings, persistent optimism regarding a vaccine and the hopes of some more Fed stimulus down the line. That meant the Dow ignored Donald Trump’s latest inflammatory comments towards China, the President claiming it was the ‘incompetence’ of Beijing that caused the virus to spread.

And finally.... Treasury committee chair Mel Stride returns to the issue of negative interest rates, which governor Andrew Bailey refused to rule in or out.

Q: What criteria need to be met for the Bank to go for negative rates?

Governor Andrew Bailey replies that he has changed his position on negative interest rates a little, given recent events.

We need to reassess our tools, and keep them (negative interest rates) as an option, he tells the committee.

But there are lot of issues to consider -- including how it would affect the stability of the financial system, and how an interest rate cut below 0% would be transmitted through the system.

We also need to consider any other measures that Bank would take alongside it, Bailey adds, cautioning that there are “some pretty mixed reviews” about how negative rates have worked elsewhere.

Conservative MP Steve Baker has challenged the Bank of England over its QE programme.

Isn’t it “quite extraordinary” that we have one major borrower (the UK government), and one major buyer (the Bank) in the market, giving bond traders the confidence to buy gilts because they know they can sell them onto Threadneedle Street?

We are facing a “quite extraordinary situation”, governor Andrew Bailey replies.

But he doesn’t accept that the Bank is simply monetising government borrowing. Instead, he argues, the Bank is reacting to economic conditions by expanding its QE programme -- just as the government is reacting to economic conditions by issuing more debt.....

Q: What impact will Covid-19 have on the UK property market?

Elisabeth Stheeman, a member of the BoE’s Financial Policy Committee, replies that commercial property - particularly offices outside London - will be hit as companies reassess how much office space they need.

Back at the Treasury committee e-hearing, Bank of England policymaker Jonathan Haskel has warned that self-employed workers, younger people, and those with fewer skills will be most hurt by the recession.

These workers, such as those in the hospitality sector and hotels, will be reliant on a pick-up in aggregate demand in the economy, Haskel adds.

Two arrested over Ghosn escape

Breaking away from the Bank of England hearing... a former US Green Beret soldier and his son have reportedly been arrested over Carlos Ghosn’s shock escape from Japan last December.

Reuters has the details:

U.S. authorities on Wednesday arrested a former special forces soldier and another man wanted by Japan on charges that they enabled the escape of former Nissan Motor boss Carlos Ghosn out of the country.

Former U.S. Green Beret Michael Taylor and the other man, Peter Taylor, are expected to appear by video conference before a federal judge in Worcester, Massachusetts, according to court records.

The BBC’s Faisal Islam points out that the Bank of England has helped to push UK borrowing costs below zero today.

The BoE has pledged to buy £200bn of gilts through its asset purchase scheme, lifting its QE total to £645bn. That means investors feel confident buying UK gilts, as they can sell them onto the Bank.

Andrew Bailey’s comments on negative interest rates are very timely - just hours after the UK borrowed for free for the next three years.

Our economics editor Larry Elliott writes:

Britain has sold a government bond with a negative yield for the first time after plunging inflation raised the prospect of the Bank of England cutting official interest rates below zero.

In a development that effectively means investors have to pay to lend money to fund the government’s response to the Covid-19 pandemic, investors bought gilts knowing they would get back less than they paid for them when the bonds mature in three years’ time.

The debt management office (DMO) said it had sold £3.8bn of three-year gilts at a yield of -0.003%, with the result that Britain has joined a small group of countries – such as Germany and Japan – that have persuaded investors to accept a negative return.

Deputy governor Ben Broadbent denies that the Bank is anticipating a V-shaped recovery from the pandemic.

He tells MPs that in the Bank’s latest scenario, the economy shrinks by around 25% in the April-June quarter, and doesn’t return to its pre-crisis levels until 2022.

There’s no doubt that in our scenario, the recovery takes a lot longer than the downturn, Broadbent insists, saying it doesn’t really sound like a V....

MPs then press the Bank of England on its decision to force UK banks to scrap their dividends back in March.

Andrew Bailey insists this was a sensible business decision, not good politics. It strengthens the banks’ balance sheets - and if the economy recovers faster than hoped, they can reassess dividend policy.

Andrew Bailey seems to be keeping his options open, on whether to impose negative interest rates on the UK economy in an attempt to stimulate the economy.

Here’s some reaction:

BoE governor: Foolish to rule out negative interest rates

The Treasury committee moves onto monetary policy -- and asks whether the Bank of England could cut rates below zero:

Q: Would you contemplate negative interest rates and buying riskier assets?

We do not rule things out as a matter of principle - that would be foolish, replies governor Andrew Bailey smoothly.

He explains that the MPC has a history of keeping the ‘lower bound’ of monetary policy under review -- ie, how low it can actually cut rates. [UK interest rates are currently just 0.1%, a record low].

We are keeping our tools under active review in the current situation, Bailey adds.

Bailey says it is “looking carefully” at the experience that other central banks have had with negative interest rates, where it has been “quite a nuanced policy tool”.

He doesn’t name them -- but one obvious candidate is the European Central Bank. The ECB imposes -0.5% interest rates on commercial bank deposits to encourage them to lend to the real economy, rather than leave money in its vaults.

As he puts it:

We’re not ruling it in, and we’re not ruling it out.

The governor insists that this is the “right time” to assess all the Bank’s tools, including the purchase of riskier assets, as the BoE may need to “move rapidly” in the future.

He also explains that communication would be “absolutely critical”, if there was any move on negative interest rates.

Updated

Bank of England governor Andrew Bailey is testifying, remotely, to the UK parliament’s Treasury Committee.

He’s “accompanied” by deputy governors Ben Broadbent and Jon Cunliffe, and external policy members Elisabeth Stheeman and Jonathan Haskel.

Q: Are Britain’s banks as well-capitalised as they should be to trade through the Covid-19 crisis, given the slump in their share prices? (as economist Sir John Vickers fears)?

Bailey argues that it makes more sense to assess the value of a bank’s assets (the book value), when stress-testing them.

If you had used banks’ share price in the run-up to the 2008 financial crisis, for example, you’d have been given a wildly erroneous view of their strength.

The better question, Bailey says, is why are bank shares so low? It’s partly because the market has doubts about some banks’ business model, he reckons - rather than on the value of their assets.

UK sells bonds at negative yield

In a landmark development, investors have paid for the opportunity to lend money to the UK government.

Britain auctioned off £3.75bn of three-year bonds this morning, at an average yield (or interest rates) of -0.003%. That means that investors paid more than the face value of the bonds - meaning they are guaranteed a very small loss if they hold the debt until it matures in 2023.

Back in 2016, the UK did sell some short-term debt at below zero -- but City experts say this is the first time a three-year bond has been sold at a negative yield.

This shows that investors are pessimistic about the prospects for UK inflation, and anticipating further stimulus measures to support the economy.

It also shows that there’s still demand for UK debt - the auction was more than two-times oversubscribed, so investors had accept this small negative yield in order to win a slice of the auction.

Here’s the official results:

Here’s Reuters’ take:

Britain sold a government bond that pays a negative yield for the first time on Wednesday - meaning that Britain’s government is effectively being paid to borrow as investors agreed to be paid back slightly less than they lent.

The bond, which matures in July 2023, sold at an average yield of -0.003%.

While investors will receive an annual interest payment of 0.75%, they paid above face value for the bond so the actual return in cash terms is less than they have lent.

The Financial Times reckons investors are expecting the Bank of England to launch further stimulus moves soon:

The UK has sold bonds with a negative yield for the first time, with a fall in inflation heaping further pressure on policymakers to take new action to prop up the economy.

The sale effectively means that investors are paying for the privilege of lending to the UK government, reflecting growing investor expectations that the Bank of England may need to take additional steps to push inflation back to its 2 per cent target.

The BoE has so far resisted cutting its main interest rate below zero but other central banks, such as the European Central Bank and Bank of Japan had already pushed their rates into negative territory even before the Covid-19 crisis.

The UK sold £3.8bn of three-year gilts at a yield of minus 0.003 per cent, according to the Debt Management Office. The slightly negative yield suggests investors who hold the debt to maturity will get back less than they paid, when accounting for regular interest payments and the return of principal.

Updated

Here’s my colleague Richard Partington on the WTO’s trade slowdown warning:

International imports and exports have fallen to their lowest level for at least four years, according to World Trade Organization figures revealing the economic damage caused by the coronavirus pandemic.

Warning there was little evidence of the downturn ending soon as Covid-19 brings the world economy to an effective standstill, the global authority on trade said it believed import and export activity would fall “precipitously” in the first half of 2020.

The WTO’s quarterly goods trade barometer, which provides real-time information on the trajectory of world merchandise trade relative to recent trends, slumped to 87.6 on a scale where anything below 100 indicates a downturn. Suggesting a sharp contraction in world trade extending into the second quarter of 2020, the reading was the lowest value on record since the indicator’s launch in July 2016.

This is the first time Canada’s inflation rate has turned negative since the financial crisis over a decade ago:

Canadian inflation sinks to minus 0.2%

Newsflash: Canadian inflation has fallen below zero as the Covid-19 pandemic continues to grip the global economy.

The annual Consumer Prices index across Canada fell by 0.2% in April, according to Statistics Canada. That’s down from a 0.9% year-on-year rise in March.

In April alone, the CPI dropped by 0,7% in April after a 0.9% monthly drop in March.

As in the UK, fuel and clothing both became cheaper under the lockdown - although food prices did jump.

Statistics Canada explains:

Compared with April 2019, consumers paid less for transportation (-4.4%), clothing and footwear (-4.1%), and recreation, education and reading (-0.7%). In contrast, the growth in food prices (+3.4%) accelerated in April 2020 and recorded the largest year-over-year increase of any major component.

Gasoline price slumped by 39.3% on a year-over-year basis in April, the largest year-over-year decline on record. Clothes and food prices fell 5.9% during April, which is the biggest monthly drop on record.

But food became significantly more expensive; including rice (+9.2%), eggs (+8.8%) and margarine (+7.9%) as consumers scrambled to stock up.

Higher sales and supply issues, including a slowdown in cross-border shipping due to COVID-19, contributed to higher prices for pork (+9.0%) and beef (+8.5%), Statistics Canada adds.

Big Mac dreams satisfied as drive-throughs reopen

My colleague Joanna Partridge has travelled to Bushey, near Watford, to meet some of the McDonalds customers keen to buy fast food again:

An hour after reopening for the first time in 8 weeks, a queue of cars containing customers hungry for Big Macs and Happy Meals has formed outside the McDonald’s drive-through in Bushey, east of Watford.

A McDonald’s employee in a high-vis jacket is marshalling the queue of vehicles as the line stretches beyond the restaurant’s waiting area onto the A41. Ruby Hibbitt, 18, and her housemate Paige Bush, 19, had been told by a friend that the restaurant was open and had got straight in the car to buy lunch.

They’d both been dreaming of a burger and diet coke, they said.

Updated

The Bank of England’s new governor, Andrew Bailey, must write to the UK chancellor to explain why inflation is just 0.8%, far from its target of 2%.

But what might he say? Our economics editor Larry Elliott has some ideas:

He might start by saying that the shuttering of much of the economy meant the April inflation rate had to include a bit of informed guesswork on the part of the Office for National Statistics (ONS) – because the usual field surveys that go into collecting prices were impossible during lockdown – but that the main reason for the drop in inflation was the collapse in oil prices, owing to a mismatch between global demand and supply.

But Bailey will also tell Sunak that underlying inflationary pressures are also weak. Clothing prices fell sharply because retailers were desperate to get rid of excess stock. The cost of travel goods were also down because nobody is travelling.

Greece’s finance minister has warned that its economy will probably shrink by at least 10% this year.

The Covid-19 pandemic is crushing Athens’ hopes of economic recovery in 2020, after years of extremely painful austerity. PM Kyriakos Mitsotakis is expected to outline his plans to revive the economy later today.

Reuters has the details:

Greece’s economy may shrink 10 to 13% this year following a lockdown imposed to stem the spread of the novel coronavirus, but the government will take steps to mitigate the impact, the country’s finance minister said on Wednesday.

Finance Minister Christos Staikouras told Greek radio Real FM that the economy, which emerged from a decade-long debt crisis and three international bailouts in 2018, can withstand a possible second wave of infections in autumn.

The conservative government will support businesses and protect jobs, he said, and plans to take measures that could contain the estimated recession by as much as 8 points.

“We aim for the economy to gradually return to the dynamic it had before the health crisis, in February,” Staikouras said.

Fast food chain McDonald’s has taken another step towards normality by resuming drive-through services at nearly 40 restaurants in the UK and Ireland.

All the UK restaurants are in the South East of England - including in Luton, Peterborough, Chelmsford, Ipswich, Watford, Medway, Harrow and West Sutton. Six sites in Dublin are also reopening.

McDonalds says it expects high demand. It has introduced new safe working measures to prevent Covid-19 spreading, but warns that sites could close again if necessary to protect staff.

WTO: Global trade volumes are slumping

World trade volumes are likely to “fall precipitously” in the first half of 2020 as the Covid-19 pandemic batters the global economy.

That’s the latest warning from the World Trade Organisation, which says its goods barometer is now “flashing red” as trade volumes fall.

This index of trade volumes has slumped to 87.6, the lowest since it was launched in July 2016 - and some way below the 100 points baseline.

The WTO warns that there is “no sign of the trade decline bottoming out yet”.

Today’s figures are consistent with the WTO’s April forecast that world merchandise trade could decline by between 13% and 32% in 2020, depending on how long the pandemic lasts - and how effective governments are at combating it.

Shipments of new cars have fallen particularly dramatically, the WTO adds, although technology products are holding up better.

The automotive products index (79.7) was weakest of all, due to collapsing car production and sales in major economies. The sharp decline in the forward-looking export orders index (83.3) suggests that trade weakness will persist in the short-run.

Declines in the container shipping (88.5) and air freight (88.0) indices reflect weak demand for traded goods as well as supply-side constraints arising from efforts to suppress COVID-19. Only the indices for electronic components (94.0) and agricultural raw materials (95.7) show signs of stability, although they too remain below trend.

Updated

City analyst Kit Juckes of Société Générale has spotted some interesting trends in the this morning’s UK inflation report:

Eurozone inflation drops to 0.3%

Newsflash: Inflation across the eurozone has slumped to its lowest level in almost four years - just like in the UK.

Consumer prices in the euro area only rose by 0.3% annually in April, Eurostat reports. That’s the lowest reading since August 2016, down from 0.7% in March.

It says:

In April 2020, a month marked by COVID-19 containment measures in all countries, the euro area annual inflation rate was 0.3%, down from 0.7% in March. A year earlier, the rate was 1.7%.

As in Britain, lower energy prices pulled CPI down - thanks to the glut of crude oil caused by the pandemic and the price war between Saudi Arabia and Russia.

But, eurostat also found that food, alcohol and tobacco prices rose last month:

In April, the highest contribution to the annual euro area inflation rate came from food, alcohol & tobacco (+0.67 percentage points, pp), followed by services (+0.52 pp), non-energy industrial goods (+0.09 pp) and energy (-0.97 pp).

My colleague Zoe Wood explains how M&S’s sales have deteriorated under the lockdown:

In the six weeks to 9 May, clothing and home sales dropped 75%, while sales in Marks & Spencer’s food halls, excluding its restaurants, were down 4.6%.

The company said even though its website had continued to operate, demand for clothing in the initial weeks was very low, although it had begun to improve. Over the last three weeks online sales were 20% higher than last year.

Just in: UK house prices picked up in March, just before the pandemic forced the housing market to freeze.

The ONS says:

  • UK average house prices increased by 2.1% over the year to March 2020, up from 2.0% in February 2020.
  • Average house prices increased over the year in England to £248,000 (2.2%), Wales to £162,000 (1.1%), Scotland to £152,000 (1.5%) and Northern Ireland to £141,000 (3.8%).
  • London’s average house prices increased by 4.7% over the year to March 2020; this is the largest 12-month growth London has seen since December 2016.

Here are more details of Marks & Spencer’s plan to ride out the pandemic, via the BBC’s Emma Simpson.

Here’s our news story on today’s inflation report:

Looking ahead... Tom Stevenson, investment director at Fidelity Personal Investing, warns that inflation could spike once the pandemic is over

He points out that the huge stimulus measures launched by central banks and governments could ultimately push up the cost of living:

“The drop in inflation to its lowest level since 2016 reflects a fall in petrol costs as well as the impact of lower end demand on factory gate prices.

“In the short term, disinflationary pressures will mount as the economy slows under lockdown, consumers become more cautious and companies start to prepare for life beyond furlough support by reducing their workforces. Further out, there is a growing fear that monetary and fiscal policy choices could lead to higher inflation, perhaps significantly so.

“Investors have started to prepare for a more inflationary environment by adding to their holdings of gold, the traditional hedge against rising prices. The precious metal is trading close to a seven-year high.”

But in the short-term, the trend is clearly downward:

High street chain Marks & Spencer has outlined how the lockdown will hurt its business - and it’s an alarming picture.

Under M&S’s Covid-19 scenario, the current government guidelines continue for a period of at least four months - resulting in a 70% drop in clothing and home sales in April-July, and a 20% drop in food sales (compared to previous forecasts).

M&S has already been hit by the pandemic, telling shareholders:

The Covid-19 crisis started to have an impact on the business in the first week of March with reductions in UK Clothing & Home sales which declined by 6.2% and 26.9% the week after.

With the onset of lockdown, the effect on sales, colleagues and customers in both businesses has been dramatic. Clothing sales at the low point dropped to 16% of their level a year ago

The firm also reported that costs and stock write downs for Covid-19 have cost £212.8m. This helped to push pre-tax profits down by a fifth in the last financial year, to £67.2m from £84.2m.

Retailers are expected to slash prices in the months ahead, to shift the huge stockpiles of unsold clothes which they’ve not been able to sell. That would continue the drop in clothing prices seen in April’s inflation report, keeping the cost of living lower.

British justice secretary Robert Buckland says the government will try to hep Rolls-Royce and its staff.

Asked about the firm’s plan to axe 9,000 job cuts, Buckland replied:

“Clearly we will have to go to work with the employer to look at the options.

“All of us will be looking not just at Rolls Royce but at the whole sector and the implications of this for the supply chains as well, let’s not forget them, to make sure we are doing everything we can in terms of plans and action to support what is a very high skilled part of our economy.”

(thanks to Reuters for the quotes)

Updated

Rolls-Royce cuts 9,000 jobs

Grim news: The Covid-19 pandemic is forcing Rolls-Royce to slash 9,000 jobs - or nearly a fifth of its workforce.

Rolls-Royce, one of the jewels in UK manufacturing’s crown, is wielding the axe after seeing slumping demand for its jet engines due to the pandemic. With airlines suspending flights and mothballing planes, the Derby-based firm faces a serious crisis.

Warren East, the chief executive, told the City:

“This is not a crisis of our making. But it is the crisis that we face and we must deal with it.

Our airline customers and airframe partners are having to adapt and so must we.

“Being told that there is no longer a job for you is a terrible prospect and it is especially hard when all of us take so much pride in working for Rolls-Royce.

“But we must take difficult decisions to see our business through these unprecedented times.”

Here’s the full story:

Biggest drop in inflation in a decade

Britain’s economy has a lot of problems right now, but inflation doesn’t appear to be one of them.

With CPI almost halving last month, Equals Group chief economist Jeremy Thomson-Cook says weak economic demand will keep prices low:

With headline consumer inflation at 0.8% and producer price inflation – simply price rises at the beginning of a supply chain – falling 5.1% in April alone courtesy of the recent declines in oil prices, we are more likely to hear concerns about deflation from central bankers.

As we have noted in the past, you need to have demand to create inflation and, for now, there is little demand. Some will return as employees earnings recover and more businesses reopen allowing consumers to spend more on different sectors but, similar to the pace of the economy reopening, is likely to be slow.”

Ruth Gregory of Capital Economics has spotted that this is the biggest drop in inflation in over a decade:

The slump in CPI inflation from 1.5% in March to 0.8% in April (consensus 0.9%; CE 0.8%) was the biggest drop since December 2008 and left inflation at its lowest since August 2016. This was largely due to energy effects, as fuel inflation slipped from -2.4% to -12.2% and utility inflation dropped from 3.9% to -6.8% (due to the decline in Ofgem’s price cap).

There was a partial offset from food price inflation, which rose from 1.1% to 1.3%, reflecting higher inflation for fresh fruit, meat and fish. The games, toys, hobbies and computer software categories provided also provided further upward pressure.

The slump in inflation will intensify speculation that the Bank of England could cut interest rates below zero (their currently 0.1%, a record low), says Chris Bailey, European Strategist at wealth managers Raymond James:

“Talk of negative interest rates has been doing the rounds in recent weeks, but with inflation now trailing expectation, falling from 1.5% to 0.8%, that debate has become very real.

All eyes now turn to the Governor of the Bank of England’s comments later today for signs of further action to boost economic activity. The Bank of England does have room to move, if it wishes, and Governor Bailey has already laid out the red carpet for lower interest rates, so we can be sure it’s at the front of his mind.

Fast food prices jump

Did your lockdown takeaway feel a little pricier this month? If so, you’re not alone.

Prices at fast food outlets and takeaway services rose last month, the Office for National Statistics reports.

The largest monthly price increases came from takeway and delivery pizzas (up 7.3%) and takeaway burgers (up 4.6%).

Although food prices fell slightly, vegetable became pricier - possibly due to a switch to British potatoes.

The inflation report explains:

Food prices overall fell by 0.1% between March and April this year....

The largest upward contribution came from vegetables (including potatoes and tubers), where prices rose between March and April this year but fell between the same two months a year ago. This month’s price movements for vegetables could be a consequence of switching from internationally to domestically grown produce.

Sky’s Scott Beasley points out that this partly eroded the benefits from cheaper oil.

Factory gate inflation turns negative

The slump in the oil price has also driven down producer price inflation (basically, how much companies charge for their goods charge) to -0.7%.

That means goods at the factory gate are actually cheaper than a year ago, suggesting consumer price inflation will remain low in the coming months.

The ONS says:

  • The price for materials and fuels used in the manufacturing process displayed negative growth of 9.8% on the year to April 2020, down from negative growth of 3.1% in March 2020.
  • Petroleum products made the largest downward contribution to the change in the annual rate of output inflation.
  • Crude oil provided the largest downward contribution to the annual rate of input inflation.

Toy prices went up

Although overall inflation fell, the cost of games rose in April -- as families scrambled to find interesting things to during the lockdown.

The ONS explains:

There was an upward contribution (of 0.11 percentage points) from games, toys and hobbies where prices for items like computer games consoles, preschool activity toys, craft kits, dolls, construction toys, and sit and ride toys overall rose by 0.5% in the month compared with a fall of 5.8% a year ago.

There were further upward contributions of 0.07 percentage points from data processing equipment, principally computer software, and 0.05 percentage points from recording media, including CDs and DVDs purchased online and music downloads.

Stock shortages drove up wool prices rose last month -- perhaps due to isolating Brits taking up knitting?

The ONS says:

For other clothing and accessories, most of the upward movement came from balls of knitting wool, where there were recoveries from sales and higher price comparable items as a result of stock shortages in some stores.

Petrol prices hit their lowest level in four years, today’s inflation report shows:

Petrol prices fell by 10.4 pence per litre between March and April 2020, to stand at 109.0 pence per litre, and diesel prices fell by 7.8 pence per litre, to stand at 116.0 pence per litre.

In comparison, between March and April 2019, petrol and diesel prices increased by 3.8 and 2.3 pence per litre to stand at 124.1 and 133.0 pence per litre, respectively. Petrol prices were last lower in May 2016 (when a litre cost 108.7 pence), and the 10.4 pence per litre drop in petrol prices is the largest monthly fall since the current ultra-low sulphur or unleaded petrol series began in 1990.

Good news for drivers! But there is a proviso. With millions of employees working from home, and non-essential driving curbed, few will have actually benefited much from cheaper fuel prices.

UK inflation drops to just 0.8%

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

Britain’s inflation rate has fallen to its lowest rate in over three and a half years last month, due to a drop in energy prices and discounting by shops desperate to sell stock during the Covid-19 lockdown.

The Consumer Price Index plunged to just 0.8% year-on-year in April, the Office for National Statistics reports, down from 1.5% per year in March.

That’s its lowest rate since August 2016.

In April alone, prices fell by 0.2%, bringing some relief to struggling households and firms.

Cheaper energy bills and petrol prices has a downward impact on the cost of living.

That’s due to falling crude prices as the coronavirus outbreak hits demand, and the cap on UK energy bills. Gas prices, for example, fell by 3.5%.

The ONS says:

  • Falling energy and fuel pump prices resulted in the largest downward contributions to the change in the inflation rate between March and April 2020.
  • Rising prices for recreational goods resulted in a partially offsetting upward contribution to change.

Discounting was also a factor -- with clothes prices dropping last month during the lockdown:

The ONS explains:

For garments, prices overall fell by 2.3% between March and April 2020 compared with a small increase of 0.4% a year ago. There were a greater number of items recorded as being discounted this year, when compared with April 2019, with reductions across a range of women’s and men’s clothing items.

The larger number of items recorded as being on sale could reflect retailers’ efforts to encourage online purchases or potential difficulties as a result of the current economic situation.

More to follow....

Also coming up today

Inflation data from the eurozone and Canada are expected to also show a sharp slowdown last month.

David Madden of CMC Markets has the details:

Eurozone CPI for April is anticipated to fall from 0.7% in March to 0.4% in April. The core update is anticipated to be 0.9%, and that would be a fall from the 1% registered in March. The figures will be announced at 10am (UK time).

Canadian CPI will be released at 1.30pm (UK time). The report is expected to be -0.1% and that would be a huge drop from the 0.9% posted in March.

UK high street chain Marks & Spencer is reporting results, updating the City on its performance during the lockdown. And there could be queues at your local McDonalds outlets, as the fast food chain reopens around 40 outlets across the county.

The agenda

  • 10am BST: Eurozone inflation data for April
  • 1.30pm BST: Canadian inflation data
  • 2.30pm BST: Bank of England governor Andrew Bailey and colleagues testify to parliament’s Treasury committee

Updated

 

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