Graeme Wearden 

UK inflation hits three-year low; London house prices fall again – business live

Rolling coverage of the latest economic and financial news, including the latest UK inflation and house price data
  
  

A British Gas bill.
A British Gas bill. Photograph: Peter Byrne/PA

Finally, after a weak start the FTSE 100 has ended the day little changed.

The blue-chip index has closed 10 points lower at 7,355.

While most eyes are on the impeachment hearings which just began, Fed chair Jerome Powell has told another Congressional committee that America’s economy should keep growing steadily despite problems overseas.

Powell told the Joint Economic Committee that slow international growth, and trade tensions, were a risk, adding:

“Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely.”

Powell also reiterated what he said two weeks ago, that the Fed doesn’t expect to change interest rates soon unless there is a “material reassessment” of their outlook.

Full story: Royal Mail wins strike ruling

Here’s my colleague Jasper Jolly on today’s high court ruling against unions who were planning industrial action at Royal Mail:

Royal Mail has won a high court injunction preventing the first national postal strike in a decade, which it said could have disrupted postal voting in the general election.

Members of the Communication Workers Union overwhelmingly backed industrial action by 97% last month, on a turnout of almost 76%. However, Royal Mail successfully argued that there were “irregularities” in the ballot.

The CWU had denied Royal Mail’s claims.

Royal Mail said it had supplied evidence from 72 sorting offices that unions breached legal obligations in holding the vote, in a statement to the stock market on Friday.

Union members are required to vote in private at home rather than at work. However, Royal Mail said some workers intercepted their ballot papers before they were delivered and filmed and photographed themselves voting in favour of strike action.

The CWU had not set strike dates before Royal Mail’s application for the injunction. However, Royal Mail had argued that a strike could have an impact on postal votes before the general election on 12 December.

NEWSFLASH: Royal Mail has won a High Court injunction to block potential strikes by postal workers in the run-up to Christmas, according to the Press Association....

Over in New York, the US stock market has opened a little lower, but it still near record highs.

Traders are watching for Fed chair Jerome Powell’s testimony to Congress later, and the impeachment hearings on Capitol Hill.

Here’s the opening moves:

  • Dow: Down 53 points or 0.2% at 27,637
  • S&P 500: Down 9 points or 0.3% at 3,082
  • Nasdaq: down 27 points or 0.3% at 8,458

Woodford Equity Income investors 'to lose 33%' in wind-up

Anyone who trusted Neil Woodford with their money should take a deep breath.

Investors in the Woodford Equity Income fund, which was frozen in June after a surge in redemptions, risk losing 33% of their investment as the fund is wound up.

That’s according to a review carried out into the fund by private equity specialists PJT Park Hill, Citywire is reporting.

Equity Income was taken over by Link Fund Solutions (which later took control of the Woodford Income Focus fund)

Adrian Lowcock, Head of personal investing at investment platform Willis Owen, says:

As the estimates come from a review commissioned by Link they should be taken seriously. Investors should note that losses of 33% is the base case, with this figure rising to over 42% in the worst case scenario.

Given these estimates are over and above what investors have already lost through the underperformance of the fund, it could mean investors’ overall see their investment shrink by even more than this.

This will raise questions about whether Link acted in the best interests of investors by closing down the fund. At the time Link felt they had little choice because they had no clarity on how long the fund would need to remain closed for, but with the prospect of such a hefty loss overall, it is unlikely they have won any fans among investors who are so deeply out of pocket.”

Greg Daco of Oxford Economics shows how energy prices pushed US inflation up last month:

US consumer price inflation picks up

Just in: US inflation rose last month, by more than expected.

Consumer prices rose by 0.4% during October, having been flat in September.

Energy prices pushed the cost of living up (unlike in the UK!), with gasoline and heating costs higher.

Housing and food costs rose a little, while clothing had a negative impact. Transportation, medical care and prescription drug costs all rose month-on-month

This lifted the annual inflation rate up to 1.8%, from 1.7%. However core inflation (which strips out volatile measures like energy) dipped back to 2.3% from 2.4%.

Here’s some snap reaction:

In rather awkward timing, the owner of British Gas has just won an appeal against the energy price cap.

Centrica persuaded the High Court that regulator Ofgem had not calculated part of the cap fairly - on the very morning we learned that it has pushed inflation down.

The utility group was unhappy that Ofgem made a late change in determining fair energy prices for 11 million homes. Centrica argued this change knowingly underestimated the cost of supplying energy last winter, and cost it £70m.

Ofgem says it is disappointed, and could appeal, adding:

“The judgement does not change the fundamentals of the price cap, which remains in place and will continue to protect 11 million households on default deals, ensuring that they pay a fair price for their energy.”

The energy price cap is here to stay, but the utility industry is pushing back against another Labour Party proposal -- nationalisation.

SSE, the energy provider, has told reporters that the move could disrupt the industry - as it reported a jump in profits.

Reuters has the details:

Labour has pledged to nationalise energy networks and also set up a state-owned company to develop and own stakes in the country’s offshore wind farms if it wins power in the December 12 election, plans that SSE says could make it more difficult to develop new projects.

Labour’s plans would be hugely disruptive for the industry and could risk the UK’s leadership position in offshore wind, Alistair Phillips-Davies, SSE CEO said in a telephone call with journalists.

Britain is the world’s largest offshore wind market accounting for 40% of global capacity and plans to generate a third of its electricity from the technology by 2030 in a bid to achieve net zero carbon emissions by 2050.

“The best people to achieve net zero are the private companies that are currently performing and delivering well,” Phillips-Davies said.

But do the public agree? A new poll by YouGov found solid support for nationalising the energy companies.

SSE’s shares are up 2% today, after it lifted its profits to £263m, on an adjusted basis, in the last six months, up from £229.4m.

House prices in the North of England will outpace those in the South for the next five years.

That’s according to a report from Savills estate agents, which also predicts that London house prices will keep lagging.

The Press Association has the details:

The average house price is predicted to be 35,000 higher in five years’ time as “Brexit and election-related angst” subsides, according to a report.

Savills expects the average house price across Britain to lift from 231,000 in 2019 to 266,000 in 2024 - with northern regions out-performing those in the South.

There are also signs that the prime central London property market could be set for a bounce, but elsewhere in London growth in house prices is expected to lag behind the rest of Britain.

The North West of England is tipped to see the strongest percentage house price growth, with property values predicted by Savills to surge by 24% by 2024.

Charlie Kannreuther, head of residential at Savills in the North West and West Midlands, said:

“The economic pull of Manchester continues to be a major factor in the strength of the North West property market, and we’ve seen a notable increase in interest from buyers outside the area, particularly from London and the South East.

“Wealth created through jobs in the city tends to migrate south to the outer suburbs and Cheshire villages such as Alderley Edge, Knutsford and Wilmslow.

“The popularity of west Cheshire villages such as Tarporley and Malpas also continues to rise, with increasing demand pushing up values.”

PwC: London struggles as regions pick up pace

Here’s Jamie Durham, economist at PwC, on today’s house price data:

“Today’s house price data from the ONS show that UK house prices increased by 1.3% in the year to September 2019, unchanged from August. The average UK house price in September was £234,000.

“However, the divide between London and the rest of the country continues. Prices in the capital continued to weigh on national house price growth and fell by 0.4% year-on-year.

“Elsewhere in the country the picture is a bit brighter. Prices in the wider South East region increased by 0.7% in September, after falling in the previous month. Price growth was also relatively strong in Yorkshire and the Humber, the North West and North East, where prices all grew by over 2%.

“Uncertainty in the wider economy is likely to continue to impact on house price growth over the coming months. However, while this month’s release shows that the housing market remains weak, there may be signs of some improvement, as the rate of UK house price growth has remained fairly stable over the last few months, after declining relatively consistently since 2016.”

You can read the full report online here.

Back in 2016, technology entrepreneur Elon Musk spoke warmly about the depth of automotive engineering talent in the UK.

The boss of Tesla gushed:

Just look at Formula 1 - it amazes me how much British talent there is in that.

“We are likely to establish a Tesla engineering group in Britain at some point in the future.”

Well, the time has come for Tesla to cite its first European factor, and it’s chosen.... Berlin!

Now, Germany obviously also boasts a lot of engineering ability. But it appears that another factor, namely Brexit, could have swayed the decision....

Could the eurozone’s growth malaise be ending?

New data shows that industrial production rose by 0.1% in September, compared with August - as the slump in factory output bottoms out.

Production is still 1.7% lower than a year ago, but it’s possible that manufacturing stabilising.

London house prices down again

UK house price inflation remains subdued, as prices in the capital continue to fall.

UK average house prices increased by 1.3% over the year to September 2019, unchanged from August 2019, the Office for National Statistics says.

But in London, prices continued to drop. The average property now costs £474,601, down from £476,545 in September 2018, and £474,957 in August 2019.

Here’s the key points:

  • Average house prices increased over the year in England to £251,000 (1.0%), Wales to £164,000 (2.6%), Scotland to £155,000 (2.4%) and Northern Ireland to £140,000 (4.0%).

  • London experienced the lowest annual growth rate (negative 0.4%), followed by the East of England (negative 0.2%).

Here’s our news story on the drop in UK inflation:

Lower inflation means we should be feeling less miserable, reports Scott Corfe of the Social Market Foundation:

The energy price cap was originally proposed by former Labour leader Ed Miliband,.

But he never implemented it, after losing the 2015 election, and the idea was later pushed through by ex-PM Theresa May.

That prompted a famous reverse ferret from the Daily Mail, who originally called the idea ‘70s socialism’ before deciding it was actually a welcome crackdown on ‘rip-off bills’.

Ironically, it could be Boris Johnson who reaps the benefits, if falling inflation encourages any voters to back the Conservatives next month.

Updated

The Resolution Foundation make some good points on inflation here:

UK inflation is now at its weakest since the aftermath of the EU referendum in 2016.

That suggests that the inflationary shock of the slump in the pound -- which drove up import costs - has finally worked its way through the system.

The drop in inflation is also good news for state pensioners, who are set to receive a 3.9% increase next April under the ‘Triple-Lock’ system.

But Steven Cameron, Pensions Director at Aegon, points out that this hasn’t been confirmed yet.

If price inflation remains at 1.5% this boosts retirees’ purchasing power by 2.4%. However we still await an official rubber stamp, which after a cancelled budget and election purdah is taking longer than expected.

“While falling prices are good news for consumers, especially in light of the latest wage growth figures, released yesterday, slowing from 3.8% to 3.6%, there are many question marks for the future with Brexit and a general election all adding to uncertainty.”

Falling inflation makes UK interest cut more likely

At just 1.5%, Britain’s inflation rate has moved further below the Bank of England’s target of 2% in the medium term.

That won’t panic the Bank, of course, but it could encourage policymakers to consider lowering interest rates soon (two voted for a cut to 0.5% last week).

Rupert Thompson, Head of Research at Kingswood, explains:

These numbers follow hard on the heels of the downbeat economic data released earlier in the week which showed a slowdown in underlying wage growth, a fall in employment and the weakest GDP growth since 2010.

Altogether, this crop of data suggests any move by the Bank of England over coming months is more likely to be a rate cut than a hike. Even so, the most likely outcome remains that the Bank remains on hold – particularly now there are signs the worst of the global economic slowdown is behind us.”

This drop in inflation should cushion workers from the impact of slowing wage growth.

We learned yesterday that average earnings are rising by 3.6% per year, down from 3.8% a month earlier. So with inflation at 1.5%, real wages are rising by around 2.1%.

Food costs down, clothing up

The ONS also reports that food and non-alcoholic drinks became a little cheaper last month:

Most of this downward movement came from vegetables (including potatoes) and fruit where prices fell this year but rose a year ago. There were small, partially offsetting upward movements across the food division and from non-alcoholic beverages, where prices overall fell by less than a year ago.

But clothing and footwear prices rose last month, adding to inflation.

Across the division, the largest movements came from ladies’ clothes and footwear, where prices rose this year compared with falls a year ago. The only two standout items were ladies’ formal trousers and branded trainers.

Back in August, Ofgem ruled that the average annual energy bill for 11m homes will fall from £1,254 to £1,179, from the start of October.

It also pushed down the bills for households on pre-paid meters (but only by £25).

As you can see, this pulled down the cost of running a household sharply:

Updated

Some instant reaction:

Energy bill cap pushed inflation down

Lower energy bills helped to push UK inflation down last month, in a boost to households.

The Office for National Statistics says:

  • The largest downward contribution...came from electricity, gas and other fuels as a result of changes to the energy price cap.

  • Further downward contributions from furniture, household equipment and maintenance; and recreation and culture, were partially offset by rises in clothing and footwear prices.

Gas prices fell by 8.7% between September and October, the ONS says, while electricity prices fell by 2.2%.

UK inflation lowest since 2016

Newsflash: UK inflation has fallen to its lowest level in almost three years.

The Consumer Prices Index rose by 1.5% year-on-year in October, down from 1.7% in September.

That’s a bigger fall than expected, and the lowest headline inflation since November 2016.

More to follow....

There’s plenty of UK corporate news this morning, including:

  • Property operator British Land has slashed the value of its retail parks, shopping centres and supermarkets by 10.7%, hit by recent retail administrations. Shares have fallen 2.7%.

  • Housebuilder Taylor Wimpey is more upbeat, reporting that it has a “very strong order book” despite ongoing Brexit uncertainty. Shares have dipped by 0.8%.

  • But luxury handbag maker Mulberry is suffering from political uncertainty - it has posted a loss of £9.9m in the last six months, up from an £8.2m loss a year ago.

New Zealand’s central bank has also startled the markets overnight, by leaving interest rates on hold.

The Reserve Bank of New Zealand has been expected to cut borrowing costs, but instead left them at a 1% (still a record low) - despite signs of weak growth.

It said:

“We expect economic growth to remain subdued over the remainder of the calendar year. We will continue to monitor economic developments and remain prepared to act as required.”

This sent the New Zealand dollar spiking by 1% - and is a reminder that central bankers can be wary of easing policy.

All the main European indices are a little lower this morning, pulling the Stoxx 600 index of EU companies down by 0.35%.

Neil Wilson of Markets.com explains:

Mixed messages on trade from Trump and ongoing fears about the seemingly uncontrollable situation in Hong Kong has left Asian equines shaken. Hong Kong dipped another 2%, with China, Tokyo and Sydney all weaker. Hong Kong appears to be a city in complete chaos. One fears it could get a lot darker for the people of the city before the light emerges.

European equity markets are taking their cue from Asia with a softer open. The Stoxx 600 dipped about 0.25% in early trade while the FTSE 100 was off 0.5%. There are jitters again like we saw on Monday morning.

Britain’s FTSE 100 index has opened 26 points lower (-0.4%), dragged down by trade war jitters.

Financial stocks are among the fallers, with HSBC losing 1.6%, Barclays off 1.4% and Prudential down 1.3%. Cruise operator Carnival and luxury fashion group Burberry, who are both vulnerable to growth worries, are also down over 1%.

Hong Kong stocks slide as protests intensify

The escalating crisis in Hong Kong is also weighing on the markets today.

The territory’s Hang Seng index has slumped by 2% today, following a night of pitched battles between protesters and police at the Chinese University of Hong Kong.

Clashes are continuing today, including in Hong Kong’s business district. A group of protesters set up barricades and road blocks in part of the city, and there is heavy disruption on the transport system.

My colleague Verna Yu reports:

Hong Kong was paralysed on Wednesday, with riot police making arrests in a busy business district, much of the city’s public transport suspended and all universities closed following sharp clashes overnight with anti-government protesters.

Around lunch time, hundreds of protesters in office outfits took to the streets in Central, the city’s most prestigious business district, for the third day in a row. Bricks were strewn across the normally busy, traffic-filled thoroughfares as white-collar workers shouted slogans. Some held placards emblazoned: “Do not shoot our young people!”

As riot police marched through an area outside the Exchange Square, which houses the Hong Kong Stock Exchange, angry crowds cursed them and some threw objects. Police officers beat and subdued a number of people. Outside another prestigious office tower, a young man was seen bleeding from the head as officers flipped him over and tied his hands. Many in the crowds repeatedly shouted “Release him!” On a busy walkway, riot officers charged at the crowds, tackling around a dozen people to the ground as others fled.

More here:

UBS: Trade war has damaged global order

Even if a US-China trade deal is secured, Paul Donovan of UBS Wealth Management fears that the damage is done.

He says:

US President Trump suggested there was no uncertainty. That would seem to be challenged by quite a lot of evidence. UBS’s survey of industry leaders shows trade policy is causing uncertainty, which is reducing and changing investment. That is unlikely to be repaired by a trade deal.

Trust in the global trading order has been damaged.

Introduction: Trump threatens more tariffs

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

Like an autumn shower on a weary commuter, hopes of a break-through in the US-China trade war have been dampened again.

Stocks have fallen in Asia, and we’re expecting a weaker start in Europe, after US president Donald Trump gave a typically combative speech on trade affairs.

Trump told a lunchtime event at Economic Club of New York that he would impose yet more tariffs on Chinese imports, if the ongoing talks fail to produce an interim agreement.

In comments that can’t have help anyone’s digestion, the president declared:

“I tell it to everybody: If we don’t make a deal, we’re going to substantially raise those tariffs, they are going to be raised very substantially.”

Traders had hoped that Trump would signal that the next raft of tariffs on China – 15% on $156m of imports - might be frozen.

But instead, they heard some of Trump’s typical lines... An agreement is “close”, as Beijing is “dying” to cut a deal, and the US economy continues to “boom” on his watch (even through growth actually slowed in the last quarter).

This created some disappointment on Wall Street, where the Dow Jones closed absolutely unchanged last night at 27,691.49. That hasn’t happened since 2014.

In Japan, the Nikkei has dropped by 200 points or 0.85% to 23,319.87, while China’s SSE Composite dipped by 0.3%. Australia and South Korea both lost around 0.8%.

The main European indices are down about 0.4% in the futures market, following Trump’s speech.

Also coming up today

America’s top central banker, Jerome Powell, is testifying at Congress today. He could give fresh guidance about future interest rate moves, and the Fed’s concerns over the US-China trade war.

New UK inflation data, and the latest healthcheck on eurozone factories, are coming up this morning.

We’ll also find out whether British house prices continue to be hit by Brexit, following steady falls in London and parts of the South of England.

The agenda

  • 9.30am GMT: UK inflation for October: forecast to fall to 1.6% from 1.7% year-on-year.
  • 9.30am GMT: UK house price inflation for September
  • 10am GMT: Eurozone industrial production for September
  • 1.30pm GMT: US inflation data for October: forecast to remain at 1.7% year-on-year
  • 4pm GMT: US Federal Reserve chair Jerome Powell appears at the Joint Economic Committee Of Congress
 

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