And finally...stocks finished lower in New York, as traders reacted to the news that a majority of Federal Reserve officials now expect US interest rates to rise in 2023.

But the main indices recovered from their lows, after Fed chair Powell said those dot plots weren’t a great forecaster, and reiterated that the central bank believes inflationary pressures will be temporary.

And while he pledged that the Fed would taper its asset purchase scheme when the recovery merits it, he also insisted that wage increases aren’t ‘troubling’, and that the economy was still climbing out of a deep hole.

Here’s the closing prices

• Dow Jones industrial average: down 265 points or 0.77% at 34,033 points
• S&P 500: down 23 points or 0.5% at 4,223 points
• Nasdaq Composite: down 33 points or 0.25% at 14,039 points

The dollar has strengthened, though, as investors anticipate interest rate rises.

This has knocked the euro down a cent to $1.20.

And the pound has dropped to a one-month low against the dollar, back below $1.40 for the first time since 10th May.

Goodnight! GW

Q: If you raise rates, you slow the economy, and the Fed has a history of sometimes going too far....

Jerome Powell says the Fed has to follow its dual mandate, of maximum employment and price stability. Often they pull in the same direction, he points out.

(but often they don’t, as raising borrowing costs to control inflation hits activity, meaning higher unemployment).

But right now, Powell says, the economy is recovering from a deep hole, an unusual hole, to do with shutting down the economy.

It turns out it’s a heck of a lot easier to create demand than it is to bring supply back up to snuff. That’s happening all over the world. There’s no reason to think that will last indefinitely.

That was the end of the press conference.

Our current situation is that many millions of people are still unemployed, while inflation is running over target, says Jerome Powell, when asked about the Fed’s monetary policy framework.

So the challenges is to separate broad price increases from idiosyncratic factors - it’s not easy to tell which is which in real-time.

It believes that inflation is being lifted by temporary factors, which will wane, although the timing is uncertain, and the Fed will use its tools as appropriate.

Q: Might fears of a ‘taper tantrum’ leave the Fed behind the curve on tightening policy?

Powell insists the Fed will taper (slow its bond buying programme), when it feels the economy has achieved substantial further progress (towards its goals of maximum employment and price stability).

We will communicate very carefully in advance on that. And that’s what we’re doing, he says, declaring:

We will do what we can to avoid a market reaction, but ultimately when we achieve our macroeconomic goal we will taper, as appropriate.

Back on the labor market.... Jerome Powell says a ‘slew’ of retirements may have hit participation rates.

And on wages, he says pay is going up - that’s natural in a strong economy - but the Fed isn’t seeing anything “troubling”.

Namely, it’s not seeing wages at “unsustainable levels” across the economy, ahead of productivity and inflation, which are forcing firms to keep raising prices (this was the classic wage-price spiral that fuelled inflation in the past).

Instead, wage are high among new starters, many in low-skill jobs, Powell adds (reflecting the scramble to hire staff).

Supply and demand aren’t matched up well, but in a flexible economy this should resolve itself in the coming months, Powell continues.

There’s still a big group of unemployed people, he concludes, and the Fed haven’t forgotten them. And there’s every reason to think we’ll be in a strong labor market pretty quickly.

Jerome Powell, the Chair of the Federal Reserve, is speaking now.

He says Fed policy will continue to deliver powerful support to the economy. He warns that the recovery is incomplete, with risks remaining.

And he points out that the pace of recovery in the labor market has been uneven, saying:

The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.

Despite progress, joblessness continues to fall disproportionately on lower-paid service sector workers, and on African American and Hispanic people, Powell adds.

The Federal Reserve on Wednesday brought forward its projections for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a longstanding reference that the crisis was weighing on the economy.

New projections saw a majority of 11 Fed officials pencil in at least two quarter-point interest rate increases for 2023, even as officials in a statement after their two-day policy meeting pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

The Fed also made technical adjustments to prevent its benchmark interest rates from falling too low. It raised the interest rate it pays banks on reserves - the IOER - held at the U.S. central bank by five basis points, and also lifted to 0.05% from zero the rate it pays on overnight reverse repurchase agreements, used to set a floor on short-term interest rates.

The Federal Reserve has left US interest rates on hold, but brought forwards its forecast for the first interest rate rise.

The Federal Open Market Committee (FOMC) now expects the first interest rate rise to come in 2023, with the ‘dot plot’ of policymakers’ forecasts now pointing to two rate hikes before the end of 2023.

Back in March, a majority of Fed policymakers had expected the first hike would not come until 2024.

Now, seven of the 18 FOMC members see at least one rate rise in 2022, with 13 of 18 anticipating it before the end of 2023.

(these dots show where Fed members expect interest rates to be)

The UK government has held talks with six manufacturers about building “gigafactory” electric car battery plants as part of its efforts to improve the prospects of the British automotive industry.

The US carmaker Ford and the Korean electronics conglomerates LG and Samsung are among the companies that have had early-stage discussions with the government or local authorities, it is understood.

They add to talks over possible investment by the Japanese carmaker Nissan, as well as two efforts by smaller startups, InoBat and Britishvolt. The talks were first reported by the Financial Times.

Politicians including the prime minister, Boris Johnson, as well as automotive industry insiders, are hopeful the UK can protect jobs in the sector by securing investment from private companies in “gigafactories” – the name dreamed up by the Tesla boss, Elon Musk, for very large battery factories.

Estimates from the Faraday Institution, a government-backed body, suggest the UK will lose out on 100,000 jobs without gigafactories, as carmakers switch from the petrol and diesel vehicles that constitute the vast majority of British automotive output.

European shares have closed at a new record high on Wednesday, extending their winning run.

Investors pushed stocks a little higher, despite some caution ahead of the U.S. Federal Reserve’s monetary policy decision due later today.

Reuters has the details:

The pan-European STOXX 600 was up 0.2% to a record high of 459.86 points, marking its longest gaining streak in three-and-a-half years with a ninth straight positive session.

Travel and leisure, utilities and chemical stocks were the best performers, as investors bet on a jump in consumer demand and industrial production.

Sony Music has acquired the UK’s largest independent podcast producer, Somethin’ Else, which makes David Tennant’s interview series and The Sun King, David Dimbleby’s deep dive into the life of Rupert Murdoch

Home to artists from Beyoncé and AC/DC to Dolly Parton, Sony is using the acquisition to spearhead the launch of a new global podcast division.

Dennis Kooker, the president of global digital business and US sales at Sony Music Entertainment, the Sony subsidiary that struck the deal, said:

“Our new global podcast division is key to our plans for a fast-paced expansion in the market, diversifying our creative abilities and providing a home for exciting content that will benefit millions of podcast lovers around the world.”

Companies ranging from Spotify and Amazon to Apple have been snapping up now increasingly scarce prime podcast producers and platforms to cash in on a boom in audio listening and diversify away from a reliance on music streaming.

Another day, another pandemic closing high on the London stock market.

The blue-chip FTSE 100 index has ended the day at around 7185 points, a modest rise of 12 points or 0.15% today.

That’s its highest closing level since February 2020, just before the Covid-19 outbreak sent markets sliding.

Betting firm Flutter (+3.2%), engineering firms Renishaw (+3.2%), Weir Group (+2.75%) and Rolls-Royce (+1.85%), and insurer Admiral (+2.6%) were among the risers.

But mining companies dragged on the index, with Glencore and Anglo American both down around 1.2%, and copper producer Antofagasta losing 1%.

Commodity prices fell after China announced plans to release industrial metals such as copper, aluminium and zinc from its national reserves to curb raw material costs.

Back in the UK, the government is extend a ban on evictions for businesses unable to pay their rent due to the coronavirus crisis until March 2022.

This ban was due to expire at the end of this month, and prevents shops, restaurants and other businesses that had stopped paying rent from being evicted.

The government is also introducing a mandatory arbitration process to tackle debts where landlords and tenants cannot agree a way forward.

Steve Barclay, chief secretary to the Treasury, told parliament on Wednesday.

“Existing measures will remain in place, including extending the current moratorium to protect commercial tenants from eviction to March 25, 2022.”

Barclay also told MPs the government planned to introduce legislation to support the “orderly resolution” of debts resulting from COVID-19 business closures via binding arbitration if other negotiations fail.

Business groups have welcomed the move.

Peter Bell, chief executive at The Commercial Tenants Association, says it will provide some ‘breathing space’ for companies struggling due to the pandemic.

“Businesses across the country have been clinging to a cliff edge for weeks and have finally been offered the parachute they so desperately need. After everything that tenants have gone through this past year, they deserve a soft landing and some temporary breathing space.

“Legislation to seek binding arbitration over rent arrears is a watershed moment and will ensure our economy, our jobs and our livelihoods are not massacred by a sudden end to the rent moratoria.

“This announcement is a welcome indication that the government is listening to more than the rhetoric of large influential landlords. In a gesture which shows that it is truly building back better, it has effectively preserved the DNA of our economy: our businesses, large and small.”

But the move is weighing on the shares in retail property owners, with shopping centre giant Hammerson falling 4% this afternoon (it owns Birmingham’s Bullring, the Brent Cross shopping centre, and a stake in Bicester Village).

Commercial property firms British Land (-0.45%) and Land Securities (-0.4%) are a little lower too.

More data for the Federal Reserve to ponder...

US home construction rose in May, although not as fast as expected, and the number of permits approved to build a new property fell.

Housing starts rose by 3.6% last month, to a seasonally adjusted annual rate of 1.572 million units last month, the Commerce Department reports.

That’s up from the 1.517m rate recorded in April, but below forecasts of a rise to 1.630 million units. And it’s some way below March’s annual rate of 1.733 million units, which was the highest level since June 2006.

Permits for future homebuilding fell 3.0% during the month, to a rate of 1.681 million units. That may signal that activity will weaken over the summer.

America’s housing market has recently been hit by a sharp rise in prices of raw materials like lumber (although this is now easing).

Also, the surge in prices over the last year has made houses less affordable (although the recent dip in lending rates may help, as we saw earlier with last week’s rise in mortgage approvals).

The UK competition regulator has accepted an offer from Asda’s prospective new owners to sell 27 petrol stations to satisfy concerns that the takeover could lead to higher prices, Press Association reports.

In October, billionaires Mohsin and Zuber Issa and private equity backer TDR Capital agreed a £6.8bn deal to buy the supermarket chain.

However, the new owners have been unable to work directly with Asda after regulators raised concerns in April that the deal could lead to higher petrol prices for motorists in 36 locations.

The Issa brothers offered a deal last month which would see them sell 27 of their current forecourts.

On Wednesday, the Competition and Markets Authority (CMA) said it has now “officially accepted” the proposal, meaning the new owners can begin leading a new strategy at Asda.

Nevertheless, the new Asda owners must now select a buyer, or buyers, to purchase the forecourt sites, which must be approved by the CMA.

The supermarket chain said the CMA update will enable its management team to start working with TDR and the Issa brothers over their new plans for the business.

Asda chief executive and president Roger Burnley said:

“We welcome today’s announcement from the CMA, which means we can now fully embark on the next stage of our journey under new ownership and work with Mohsin, Zuber and TDR to build an even stronger Asda that gives our customers outstanding choice, value and service in our stores and online.”

Some of the price swings in May reflected the disruption caused by the pandemic last year, such as the jump in fuel costs.

The big question is whether more chronic inflationary pressures will emerge, as my colleague Richard Partington explains:

There are some signs this could be the case, as companies report staff shortages and problems with the rising price of raw materials and transport costs – exacerbated by Covid-19 border restrictions and Brexit.

Factory gate prices rose 4.6% on the year, as the cost of materials surged 10.7% for Britain’s manufacturers, led by metal prices soaring to the highest point since May 2007. This could feed through to higher prices in the shops, if retailers pass these price rises on.

At this stage, however, it is too early to tell for sure. Many economists warn the bigger danger would be acting too early to prick an inflationary bubble that may dissipate of its own accord, threatening to derail the recovery. With a delay to the further easing of pandemic restrictions, risks to the economy still remain.

UK inflation jumped to 2.1% in May, breaching the Bank of England’s target for the first time in two years and stoking fears that the easing of pandemic restrictions since March will lead to a sustained rise in the cost of living.

The price of fuel was one of the main drivers of May’s increase, soaring by almost 20% from last year to push the rate of inflation up from 1.5% in April.

The increase is ahead of a forecast of 1.8%, and means the consumer price index has now overshot the national 2% target.

On the high street, the cost of clothing, meals and pub and restaurant drinks also helped drive up prices, with online sales of computer games a contributing factor, said the Office for National Statistics.

Some economists have voiced fears that inflation will continue to escalate as consumers spend an estimated £160bn of savings accumulated over the last 16 months. Shortages of raw materials, such as timber, and manufacturing components, including computer chips, could add to pressure to shop prices.

The UK has moved a big step closer to becoming a cashless society after official data showed that the number of payments made using notes and coins fell by 35% in 2020.

Cash was only used for one in six payments, compared with a decade ago when it accounted for more than half of the total.

Changes in spending habits have been dramatically accelerated by the coronavirus pandemic, and 13.7 million people lived a largely cashless life last year – almost double the 7.4 million figure in 2019.

Banking body UK Finance, which issued the figures, said it was too early to say whether these were permanent changes in payments behaviour...

More here:

After a strong run, UK house prices fell in April after the initial rush to take advantage of the stamp duty holiday in March.

New Land Registry figure show that the average UK house price dropped to £250,772 in April, from a record high of £255,707 in March.

That’s a decline of 1.9%, suggesting the market cooled during April following a race to avoid paying stamp duty (before the deadline was extended from end-March to end-June)

On an annual basis, prices have risen by 8.9% over the last 12 months, down from 9.9% in March 2021. That’s the first dip in annual house price growth since last July

Prices grew fastest in Wales - which has benefitted from increased demand for houses in rural areas, with a garden, and more space to accommodate home working.

• Average house prices increased over the year in England to £268,000 (8.9%), in Wales to £185,000 (15.6%), in Scotland to £161,000 (6.3%) and in Northern Ireland to £149,000 (6.0%).
  
  
• London continues to be the region with the lowest annual growth (3.3%) for the fifth consecutive month.

The ONS says that demand surged in March, before the stamp duty holiday was extended in most of the country until this summer.

On 8 July 2020, the Chancellor of the Exchequer announced a suspension of the tax paid on property purchases with immediate effect in England and Northern Ireland. The suspension came into effect slightly later, on 15 July in Scotland and 27 July in Wales. In England and Northern Ireland, properties up to the value of £500,000 would incur no tax, while the thresholds for Scotland and Wales were £250,000. These changes in the tax paid on housing transactions may have allowed sellers to request higher prices as buyers’ overall costs are reduced.

As the tax breaks were originally due to conclude at the end of March 2021, it is likely that this inflated March’s average house prices as buyers rushed to ensure their house purchases were scheduled to complete ahead of this deadline. The monthly property transactions statistics published by HM Revenue and Customs (HMRC) show that the seasonally adjusted number of transactions in March 2021 were estimated to be 183,170, the highest on record, but in April 2021 they fell to 117,860 - a fall of 36%.

On 3 March 2021, the Chancellor of the Exchequer announced an extension to the Stamp Duty holiday in England and Northern Ireland until 30 June 2021, after which, the threshold will decrease to £250,000 until 30 September 2021. From 1 October 2021, the Stamp Duty thresholds will revert to what they were before 8 July 2020. The tax holiday for Scotland ended on 31 March 2021. The tax holiday has been extended until 30 June 2021 in Wales.

More recent data from Nationwide, the mortgage lender, shows that house prices rose in May, as the ‘race for space’ continued.

Over in China, retail sales, factory output and investment by companies were all lower than expected last month, new data shows.

It indicates that China’s economic recovery may be slowing, after a strong bounceback in 2020 after the Covid-19 outbreak.

CNBC has the details:

China said Wednesday that retail sales rose 12.4% in May, missing expectations despite government efforts to boost spending and a major holiday during the month.

Analysts had expected retail sales to rise 13.6% in May from a year ago.

Consumer spending has lagged China’s economic recovery from the coronavirus pandemic. In April, retail sales climbed a less-than-expected 17.7% from a year ago.

Indicators on other parts of the economy also came in below expectations.

Industrial production rose 8.8% from a year ago in May, less than the 9% growth forecast by analysts.

Fixed asset investment during the first five months of the year rose 15.4% from a year ago, missing the 16.9% growth forecast from analysts polled by Reuters.

This is the third monthly fall in China’s factory output growth in a row.

Reuters suggests it is partly due to disruptions caused by COVID-19 outbreaks in the country’s southern export powerhouse of Guangdong, adding:

In particular, the output of auto vehicles fell 4% from a year earlier, compared with an increase of 6.8% in April, crimped by a global chip shortage.

“This is a normal cyclical slowdown after an economic recovery. In a nutshell, we can see the economic rebound is peaking,” said Hao Zhou, senior EM economist Asia, Commerzbank.

In the City, the blue-chip FTSE 100 index touched its highest level since late February 2020, when last spring’s market crash began.

The FTSE 100 hit 7217 points, up 45 points or 0.6%, a near 16-month high, although it’s since fallen back and is broadly flat on the day.

Distribution and outsourcing firm Bunzl (+2.2%) are the top riser.

Retail groups B&M (+1.6%) and Kingfisher (+1.2%), supermarket chain Sainsbury (+1.3%), consumer goods maker Reckitt Benckiser (+1.35%), betting group Flutter (+1.6%) and bank NatWest (+0.9%) are all higher too.

Russ Mould, investment director at AJ Bell explains:

The FTSE 100 moved forward despite a stronger pound being a headwind for its multitude of overseas earners.

[The rise] was driven by NatWest as banks should benefit from a stronger UK economy thanks to increased appetite from consumers and businesses to borrow money, as well as gains from B&Q owner Kingfisher which is riding the DIY boom.

Mould adds that the FTSE 100’s constituents are more representative of the global economy rather than simply the UK. So firms like Diageo and Unilever should benefit from greater consumer spending around the world, while increased economic activity bodes well for oil consumption (which has pushed up shares in Royal Dutch Shell this week).

Mining companies are down, though, reflecting the recent cooling of commodity prices (which might help keep a lid on inflation). Glencore (-2.7%) and Anglo American (-2.2%) are leading the fallers.

Inflation has also reached the hairdressers.

Prices at UK hairdressing and personal grooming establishments jumped by 7.9% year-on-year in May, today’s inflation report shows.

Sky’s Ed Conway says it’s the largest annual increase since the early 1990s.

There were long queues at the barbers and hairdressers when they reopened in England in April, as people raced to tame their flowing locks or refresh their highlights.

Hairdressers have also had to invest in making their premises Covid-19 secure, and buy PPE equipment.

Other notable moves....book prices are up 6.1% over the last year (including an 11.9% rise for fiction), carpets and other floor coverings are up 8.3%, and bicycle prices have risen 13.2% over the last 12 months.

Equipment for camping and open-air recreation are up 15.1% over the last year (perhaps as more people plan to holiday in the UK this summer?)

Here are some notable price changes in today’s inflation report:

• Alcoholic beverages and tobacco: Annual rate +1.7%, down from +2.2% last month. Lowest since March 2020 (+1.4%)
  
  
• Clothing and footwear: Annual rate +2.1%, up from 0.0% last month. Highest since March 2018 (+2.5%)
  
  
• Housing, water, electricity, gas and other fuels: Annual rate +1.9%, up from +1.8% last month. It was also +1.9% in January 2020, August 2019 and July 2019. Last higher in June 2019 (+2.1%)
  
  
• Furniture, household equipment and maintenance: Annual rate +2.8%, up from +2.7% last month. Highest since February 2018 (+3.4%)
  
  
• Transport: Annual rate +6.5%, up from +5.0% last month. Highest since February 2017 (+6.6%)
  
  
• Restaurants and hotels: Annual rate +1.8%, up from +1.0% last month. Also +1.8% in July 2020 and June 2020. Last higher in May 2020 (+2.0%)
  
  
• All goods: Annual rate +2.3%, up from +1.6% last month. Also +2.3% in October 2018. Last higher in September 2018 (+2.5%)
  
  
• All services: Annual rate +1.9%, up from +1.7% last month. Highest since July 2020 (+2.0%)
  
  
• Fuels and lubricants: Annual rate +17.9%, up from +13.6% last month. Highest since February 2017 (+19.4%)

Capital Economics, the economic research consultancy, have lifted their inflation forecast.

They now predict CPI will peak at 2.9% in November, compared to 2.6% previously, as businesses have raised their prices by more than expected since the lockdown was relaxed.

The jump in factory gate inflation, and the rise in core CPI, also suggest inflation will rise more sharply in 2021 (before dipping back below 2% in 2022).

Paul Dales of Capital Economics explains:

• The rise in CPI inflation from 1.5% in April to 2.1% in May (consensus forecast 1.8%) took it above the 2.0% target for the first time since July 2019. The rise in fuel price inflation from 13.6% to 17.9% added 0.1 percentage point (ppt) to overall inflation. And the recent large rises in natural gas and wholesale electricity prices suggest that utilities price inflation may add 0.4ppts to overall inflation in October.
  
  
• More worrying was the jump in core inflation, which excludes energy, food, alcohol and tobacco, from 1.3% to 2.0% (consensus forecast 1.5%). We suspect that most of the increases in music downloads inflation (from -5.1% to +3.4%) and games, toys and hobbies inflation (from -0.6% to +2.7%), which together added 0.2ppts to overall inflation, will be reversed in June.
  
  
• But the rises in clothing inflation (from 0.5% to 2.6%), restaurants/hotels inflation (from 1.0% to 1.8%) and package holidays inflation (from 1.8% to 2.3%), which together added 0.2 ppts to overall inflation, may have further to run as demand in these areas will probably remain strong now that they have reopened after COVID-19 lockdowns.

Here’s his full analysis.

Games, toys and hobbies had a “large upward effect” on inflation, with prices rising 2.8% in May.

It was mainly driven by computer games (particularly downloads), and kids craft kits, while construction toy prices dipped.

The ONS says:

Prices overall rose this year but fell a year ago, with the main upward contributions coming from computer game downloads and, to a lesser extent, computer games and children’s craft kits.

Partially offset by a small downward contribution coming from construction toys, where prices overall fell this year but rose a year ago.

There was a flurry of demand for construction toys, such as Lego, in the first lockdown.

Core UK inflation, which excludes the price of food, energy and other volatile items, surged to 2.0% in the 12 months to May, up from 1.3% in April.

Again, that’s much higher than expected [economists forecast a smaller rise to 1.5%].

It suggests that firms are raising their prices following the reopening of the economy, as they try to recover sales lost in the lockdown, and respond to rising costs. There’s also a ‘base effect’, given the impact of the pandemic on prices a year ago.

ING developed markets economist James Smith says:

UK core inflation leaped to 2% in May, wildly surpassing expectations and marks a considerable jump from 1.3% in April. While an element of this is down to base effects – though more so on the energy side – given the annual comparison compares to the depths of the pandemic, that’s only really part of the story here.

It’s pretty clear reading the details that there is a reopening effect, with the likes of restaurant and hotel prices increasing on the month.

Clothing prices jumped for a third consecutive month, and have increased by 6.5% since February, though this only partially reverses the heavy discounting that we saw at the start of the year. This recent jump, linked to shops reopening, tallies with a strong rebound in clothing sales as people refreshed wardrobes ahead of the reopening of hospitality and some events. That said, we suspect this particular upward trend in prices probably doesn’t have much further to run.

We also have signs that inflationary pressures are building up in the economy.

UK manufacturers raised their prices by 4.6% year-on-year in May 2020, up from 4% in April, according to the latest producer price inflation report, which tracks prices at the factory gate.

This could indicate higher prices in the shops, if retailers pass these price rises on.

That followed a surge in costs - input costs surged by 10.7% on the year, the highest since September 2011, driven by pricier metals and crude oil costs. [copper, for example, hit a record high in May, while oil has risen to pre-pandemic highs]

The ONS says:

Transport equipment, and metals and non-metallic minerals provided the largest upward contributions to the annual rates of output and input inflation respectively.

Clothing and footwear prices rose by 2.3% between April and May this year, compared with a smaller rise of 0.3% between the same two months a year ago, the inflation report shows.

That indicates that clothes stores had to offer fewer sales, as customers flocked back to their favourite outlets once non-essential shops were allowed to reopen in April.

The ONS says:

In May 2020, the proportion of discounting was relatively high during the first coronavirus lockdown when demand may have been reduced as a result of less browsing in stores, people spending more time at home where they might have been less interested in clothing, and a shift in spending patterns towards other necessities such as food and cleaning products.

The upward effects this year came from a broad range of women’s, men’s and children’s clothing and footwear.

ONS chief economist Grant Fitzner says rising crude oil prices pushed up fuel costs, while there was less discounting of clothing than usual this year.

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

Inflation across the UK has risen over the Bank of England’s target for the first time in almost two years, as the cost of fuel, clothing and eating out jumped as the economy emerged from the Covid-19 lockdown.

The UK consumer price index jumped to 2.1% in May, compared with a year ago, sharply higher than April’s 1.5%, data just released shows.

That’s the highest CPI reading since July 2019, and higher than the 1.8% which economists expected - and slightly above the BoE’s goal of 2% inflation.

The Office for National Statistics says that transport made the largest upward contribution to inflation over the last year, with rising petrol prices hitting motorists at the pumps.

Rising prices for clothing, recreational goods such as games and recording media, and meals and drinks consumed out also pushed up the cost of living, compared to May 2020 when the UK was in lockdown. CPI rose by 0.6% in May alone.

But food and non-alcoholic beverages has a downward impact on inflation, as prices fell this year but rose a year ago, particularly for bread and cereals.

Core inflation, which excludes the price of food, energy and other volatile items, rose to 2.0% in the 12 months to May, the Office for National Statistics said.

The data may fuel concerns that inflation will run over the Bank of England’s 2% target for longer than expected.

Last week, the BoE’s chief economist Andy Haldane said Britain was at a dangerous moment, with “some pretty punchy pressures on prices” and the risk that wages and prices begin “a game of leapfrog”, leading to a wage-price spiral (although not on the scale of the 1970s and 80s).

More to follow...

Also coming up today

Inflation will be high on the agenda in Washington today, where US Federal Reserve policymakers are holding its monetary policy meeting. The Federal Open Market Committee could signal to Wall Street (and beyond) that it is considering slowing the speed of its bond-buying stimulus programme, given the pick-up in growth and prices recently.

The FOMC will also release new economic forecasts, while investors will be poring over its updated ‘dot plots’ which show where members expect interest rates to be over time. This could bring forward the likely date of the first rate hike.

US consumer price inflation hit a 13-year high of 5% last month, but Fed chair Jerome Powell may stick to his dovish view that inflationary pressures will be transitory, rather than sticky - especially as US jobs growth missed expectations in April and May, and retail sales dipped last month.

Kyle Rodda of IG explains:

In the short-term, everything hinges on the Fed meeting, and what the central bank implies about its future policy. Policy settings themselves will not change, that’s for certain. However, with the Fed publishing its economic projections and famous dot-plots, there is a keen interest in whether, at the margins, Fed board members may begin to see the need to raise rates and tighten policy.

The language in the statement will probably remain dovish and look to hose down concerns off tapering and rate hikes. But with hints that some within the Fed consider it time to at least start “thinking about thinking about” tightening policy, where those dots fall may prove impactful to market pricing.

Today we also get new housing data from the UK and the US. Global stock markets remain near record highs, while the FTSE 100 closed at a near-16 month high last night.
Yesterday’s economic data was mixed - with a fall in UK unemployment balanced by a 1.3% drop in US retail sales, a drop in American homebuilder confidence, and a 6.6% annual surge in US producer prices. That took some of the heat out of Wall Street yesterday.

The agenda

• 7am BST: UK inflation report for May
• 7am BST: UK producer price inflation for May
• 8am BST: China’s fixed investment, industrial production and retail sales for May
• 9.30am BST: UK house price index for April
• 12pm BST: US weekly mortgage applications
• 1.30pm BST: US building permits and housing starts for May
• 3.30pm BST: EIA weekly oil inventory figures
• 7pm BST: Federal Reserve releases interest rate decision and economic projections
• 7.30pm BST: Federal Reserve press conference