Time to wrap up.... here’s today’s main stories;

Goodnight. GW

The UK stock market has closed lower, as the surge in inflation weighs on the City.

The FTSE 100 index of blue-chip shares has ended the day down 36 points or 0.5% at 7291 points, a one-week low.

Multinational stocks were pulled down by the stronger pound, which remains at a 21-month high against the euro tonight over €1.19.

The London Stock Exchange Group (-6%) led the fallers, with energy group SSE ending 4.2% lower after it announced a dividend cut to fund a larger investment in wind power.

European markets hit fresh record highs again, closing higher for the sixth day in a row on hopes of economic recovery and loose monetary policy.

Families face a double-whammy to their finances, with inflation and taxes both eating into incomes.

The Institute for Fiscal Studies has calculated that an average worker would need a pay rise of over 7% just to maintain their standard of living, because the Consumer Prices Index is due to hit 5% next spring.

They say:

This morning the ONS announced that CPI inflation rose to 4.2% in the year to October. This is much higher than the previous month’s figure of 3.1%, and is at a level not seen since December 2011. The Bank of England expects inflation to rise further still to 5% in the spring.

When combined with the effects of recent tax changes (including the new social care levy and freeze in the personal allowance), price increases of this magnitude have significant implications for living standards. To take an example, an individual with a salary income of £30,000 in April 2021 (and post-tax income of £24,060) would need to see nominal wage growth of 7.1% to April 2022 to maintain the same standard of living given the forecast 5% annual inflation rate.

The high rate of inflation has been driven by several factors. Demand has increased rapidly following the lifting of Covid-19 restrictions not only in the UK but in other countries as well. At the same time, supply has been constrained by production bottlenecks, staff shortages and, in the UK, new trade barriers following Brexit.

The surge in raw materials and energy prices are hurting UK businesses this year.

My colleagues have spoken to several, including Jonathan Huntley, sheep and cattle farmer in the Welsh valleys, who faces a wave of rising costs.

“Diesel and fertiliser are going to have a massive impact next year. Fertiliser is the biggest worry,” Huntley says, adding that the cost of animal feed has also been climbing.

“I have been quoted £400 per tonne for cattle feed; it usually would be £250 or £280 perhaps.”

At the family-run farm in the hills above Pontypridd, thoughts are already turning to whether they will be able afford essential products next spring.

Huntley usually buys fertiliser shortly after Christmas, ready for growing the spring grass that is vital for feeding his sheep. The price has almost doubled since his last purchase, and recently touched £700 a tonne, leaving Huntley and other farmers in a tough position.

He says:

“We can’t buy at that price, and we will have to a make decision whether to buy half as much as we have bought in the past and stretch it out. It will have a knock-on effect and we are not 100% sure how it will pan out.”

Those in the pub trade, taxi driving, retail and manufacturing are also struggling under inflationary pressures..... more here.

Sterling has rallied today, as the jump in UK inflation boosted speculation that the Bank of England could raise interest rates as soon as next month.

The pound touched a 21-month high against the euro, hitting €1.1915 for the first time since late February 2020 (when sterling slumped as the pandemic sparked a market crash).

Sterling has also gained a third of a cent against the US dollar to $1.346 (two weeks ago, it tumbled from $1.365 after the BoE left rates on hold).

Bank shares have also risen, with Lloyds up 1.2%. That’s a sign that traders are anticipating a rate rise, allowing banks to increase their net interest margins.

Russ Mould, investment director at AJ Bell, says the sight of inflation at a 10-year high of 4.2% makes for uncomfortable reading.

It “almost certainly means” the Bank of England will raise interest rates soon, potentially as soon as December, Mould adds:

“What really matters to markets is the scale of any interest rate hikes over the next year, and that will be guided by the longevity and ferocity of inflation.

There is a real chance that rates keep going up by small increments and after a while this starts to make life more difficult for consumers and companies as the cost of borrowing becomes more expensive.

UK inflation has increased to its highest level in a decade, hitting a rate more than double the government’s target amid a severe cost of living squeeze from soaring household energy bills.

The Office for National Statistics said the consumer prices index measure of annual inflation rose to 4.2% in October, up from 3.1% in September – the highest rate since November 2011.

Driven by a dramatic jump in household gas and electricity prices, the figure was higher than forecast by City economists, with the annual inflation rate more than double the 2% target set by the government for the Bank of England.

The increase will put pressure on the Bank to raise interest rates from as early as next month amid growing concern over the cost of living.

It comes after the energy regulator, Ofgem, lifted its cap on household bills after wholesale gas prices soared to record levels as economies around the world emerged from lockdown and supplies of Russian gas to Europe failed to meet demand.

Grant Fitzner, chief economist at the ONS, said it was clear there would be further inflationary pressures in the coming months after the German government suspended its approval process for the Nord Stream 2 gas pipeline, triggering an increase in wholesale energy prices.

“You will see gas prices have gone up in the last day or two following the announcement from the German government on the Nord pipeline. It’s not clear that energy prices have peaked yet.”

Here’s the full story:

UK and European gas prices have hit one month highs, as concerns over winter energy supplies rise.

The December UK gas contract has risen 4% to 249p per therm, adding to yesterday’s jump when Germany temporarily suspended its approval process for the controversial Nord Stream 2 gas pipeline.

Gas for next-day delivery in the UK is also up over 5% at 236p per therm, or almost four times its level back in January.

European wholesale prices are also at their highest level in four weeks, with the benchmark Dutch front-month contract jumping over 6% to above €100 per megawatt hour.

The suspension of the Nord Stream certification is a setback to Kremlin-backed Gazprom’s plans to extend Russian gas dominance via a new pipeline across the Baltic Sea.

The approval process is on hold until the Nord Stream 2 company, which is registered in Switzerland, transfers its main assets and staffing budget to its German subsidiary.

Here’s the full story:

Adeline Van Houtte, Europe analyst, at the Economist Intelligence Unit says the suspension could delay Nord Stream 2 supplies until the second half of next year - meaning it would not help ease Europe’s gas shortage:

Overall, the Federal Network Agency, the German regulator, was supposed to certify that the pipeline’s ownership and operating models comply with EU rules by January 2022, which now might be delayed because of the temporary suspension.

The European Commission then has two months to consider the recommendation. So, it appears likely that the pipeline will start operating in the second half of 2022, although both bodies could reach a decision earlier depending on how long the set-up of the subsidiary of the operator will take.”

But there’s also growing geopolitical pressure to scrap the project. Boris Johnson warned this week that the EU must choose between “mainlining ever more Russian hydrocarbons in giant new pipelines” and “sticking up for Ukraine” and “championing the cause for peace and stability” in eastern Europe.

On Tuesday, the chief executive of Trafigura, one of the world’s biggest commodity traders, warned there could be rolling power outages in Europe this winter, if the weather turned too cold for supplies to meet demand.

Crisps and other snacks have proved tricky to get hold of for convenience store and newsagent chain McColl’s Retail Group, amid worsening supply chain disruption and lorry driver shortage, knocking the firm’s revenues.

The group, which has over 1,200 of what it calls “neighbourhood” stores in England, Scotland and Wales, said it had been struggling to obtain its usual supplies of “high margin branded impulse lines” such as bags of crisps and chocolate bars, usually grabbed by consumers when visiting one of their shops.

The retailer said its nationwide supply chain continues to be impacted by “external factors, including the ongoing nationwide shortage of delivery drivers, labour shortages at distribution centres and insufficient supply of key products”, which it said had got worse in the fourth quarter of the year.

McColl’s has warned that if its supply chain problems did not improve in the second half of its financial year, its full-year profits might be hit, and come in below the board’s expectations.

Jonathan Miller, chief executive of McColl’s, said:

“It is disappointing to see supply chain issues worsen through the second half, but external factors have not eased, and continue to impact much of the UK economy,”

Shares in the group, which floated on the stock market in February 2014, fell by as much as 33% on the London stock exchange to a record low of 12p on Wednesday morning. This means McColl’s stock is set to register its worst day in three months, taking losses so far this year to 44%.

UK house prices have hit a fresh record high, after prices surged over the last year.

The average price increased by 11.8% over the year to September 2021, up from 10.2% in August, new figures from the Land Registry show.

The report shows that:

• The average UK house price was at a record high of £270,000 in September 2021, which is £28,000 higher than this time last year.
• Average house prices increased over the year in England to £288,000 (11.5%), in Wales to £196,000 (15.4%), in Scotland to £180,000 (12.3%) and in Northern Ireland to £159,000 (10.7%).
• London continues to be the region with the lowest annual growth (2.8%) for the tenth consecutive month.

September was the final month in which buyers could pay reduced stamp duty on purchases in England and Northern Ireland. That may have caused a scramble to complete deals, alongside the demand for larger homes as some office workers spend more time working from home.

On a non-seasonally adjusted basis, average house prices in the UK increased by 2.5% between August and September 2021, the ONS adds.

More economists are agreeing that the jump in UK inflation increases the chances of a December interest rate rise.

But it’s not certain, after the Bank of England surprised the markets by leaving borrowing costs on hold at its November meeting two weeks ago.

Raising rates could cool consumer spending, lift variable rate mortgage costs, dampen inflationary expectations and wage pressures, and might slow the economic recovery, but it wouldn’t fix the global supply chain problems driving up some prices.

Melanie Baker, senior economist at Royal London Asset Management, points out that some of the inflation pressures are temporary:

Today’s consumer price index inflation (CPI) figures are clearly a long way above the Bank of England’s 2% CPI target. The main driver of the jump in CPI inflation, as expected, came from energy prices and there will also have been an impact from the start of the phasing out of last year’s VAT cut on hospitality. Inflation driven by these things can largely be described as transitory.

Given that the Bank of England were expecting a 3.9%Y number for this release, it is worth bearing in mind that a big jump in inflation in itself won’t have come as a surprise for them. What will be important for the Bank is a broadening out of inflation pressure beyond things easily labelled as transitory. Given the scale of the surprise in these numbers and the jump in core inflation, that will apply to some of the rise in inflation today. There were downward contributions to inflation in October from a few of the main components, but these were relatively small.

In isolation, today’s upside surprise increases the chance of a December rate rise, but there are several key data releases to go before then, including another set of business surveys and labour market data.

Rupert Thompson, chief investment officer at Kingswood, flags that core inflation (stripping out volatile factors) has also risen:

“UK consumer price inflation in October jumped more sharply than expected, rising to 4.2% from 3.1% the previous month. The core rate – excluding food, energy, alcohol and tobacco – also picked up to 3.4% from 2.9%. Household energy and fuel prices, along with second hand cars, restaurants and hotels, all contributed to the rise.

Along with yesterday’s robust employment data, these numbers make a rate rise in December all the more likely – although after last month’s debacle it is dangerous to say this is a done deal.”

Richard Carter, head of fixed interest research at Quilter Cheviot, says the increase in energy bills was ‘staggering’ (due to Ofgem lifting the energy cap, following rising wholesale gas prices).

“12-month inflation rates for electricity and gas stand at a staggering 18.8% and 28.1% respectively, the highest annual rates since 2009. With petrol prices the highest since September 2012, motor fuel price hikes were also a big contributor to the elevated CPI numbers. All these goods registered price reductions as the pandemic began in March and April 2020.

“This morning’s print suggests we should be braced for a showdown at the next MPC meeting in December, where all bets will be on a rate hike. Particularly given we now have more information on the state of the labour market in the UK, which seems to be transitioning from the end of the furlough scheme well. Yesterday’s employment numbers showed a 0.5% reduction in the unemployment rate between the second and third quarter of the year, despite the unwinding of the furlough scheme.

But...raising interest rates won’t provide more gas or computer chips (as governor Andrew Bailey has pointed out several times).

Carter explains:

Some may say that the heightened inflation is evidence that the Bank of England should have acted already and started the process of tightening monetary policy. But really what’s causing the heightened price increases in the energy market is a perfect storm of factors that are all feeding through at the same time.

It’s not clear how a modest 0.15bps rate hike would have any impact on the heightened prices in the electricity and gas market. Normal monetary levers might not be effective.”

Berenberg’s Kallum Pickering says increased trade costs after Brexit are also adding to the UK’s “broad-based” inflationary pressures:

They are driven by the combination of a rapid recovery in domestic demand, widespread global supply shortages as well as the UK’s unique Brexit challenges which raise the cost of trade with the EU, the UK’s biggest trading partner.

Core inflation accelerated to 3.4% from 2.9%. In its most recent forecasts published some two weeks ago, the BoE had projected a 4.3% average rate for inflation in Q4. With further rises likely in the coming months, the actual trend is likely to blow through the BoE’s updated forecast.

The big upside surprise highlights the uncertainties as well as significant upside risks to the inflation outlook. The data strengthen the case for the BoE to begin its policy normalisation at the upcoming 16 December meeting already.

UK firms were also hit by rising costs last month, leading them to hike their own prices at the fastest rate in a decade.

Input prices (what companies pay for raw materials, parts, labour and over costs) surged by 13% year-on-year in October, up from 11.9% a month earlier, and the highest rate since September 2008.

Output prices (what companies charge for their wares) jumped by 8.0% per year, up from 7.0%.

That’s the annual rate of output inflation since September 2011, which could well feed through to consumers in the coming months.

These surging producer prices were primarily driven by crude oil and petroleum prices. But, the output cost of other products such as metal, machinery and equipment, chemical and pharmaceutical goods, and paper and printing products also rose.

Kallum Pickering, senior economist at Berenberg, explains:

Surging producer prices driven by global supply shortages and robust demand growth, as well as local issues such as rising energy costs, have not yet fully passed through into consumer prices.

Surveys reporting severe shortages of key inputs and labour as well as anecdotal reports from producers suggest that global supply pressures are still intensifying and may last well into next year.

Today’s jump in inflation means it is “even more likely” that the Bank of England raises UK interest rates at its December meeting, from 0.1% to 0.25%.

So says Paul Dales, chief UK economist at Capital Economics:

Unfavourable base effects may raise CPI inflation to around 4.7% in November and the surge in wholesale prices may result in it rising to around 5.0% by April next year. That peak would be in line with the Bank of England’s forecast, which the Bank has said is consistent with interest rates needing to rise.

Further ahead, we suspect that CPI inflation will fall back a bit further and a bit faster in the second half of next year, perhaps to close to the 2.0% target by December 2022.

So although interest rates may well rise from 0.10% to 0.25% in December and perhaps to 0.50% in February, we don’t think that they will reach the level of 1.00-1.25% currently priced into the market for the end of next year.

Yesterday’s labour market data, showing a jump in workers on company payrolls in October and record vacancies, could also bolster the case for a rate rise.

On Monday, BoE governor Andrew Bailey said he was “very uneasy” about the rising cost of living, but wanted to see signs that closing the furlough scheme at the end of September hasn’t caused a significant rise in unemployment.

Reaction to the jump in UK inflation is pouring in.

Suren Thiru, head of economics at the British Chambers of Commerce, warns that inflation is on “a significant upward trajectory”, and likely heading for 5% next year (as the Bank of England also forecasts).

October’s upturn was largely driven by rising household energy costs following the increase in Ofgem’s energy price cap, rising fuel prices and the partial reversal of the VAT reductions for hospitality and tourism which drove up restaurant and hotel prices.

“A substantial winter surge in inflation remains probable with the rising cost of imported raw materials and higher energy prices likely to lift inflation to around 5% next year.

But, Thiru argues that it should then ease back towards the UK’s 2% target as global supply chain problems improve, and tax rises hit people’s spending power:

“The Bank of England are facing a tricky trade-off between surging inflation and a stalling recovery. However, with the UK economy facing mounting headwinds, raising interest rates too early should be resisted to avoid damaging business and consumer confidence.”

These chart shows how prices of goods and services have risen in recent months, lifting UK inflation to its highest since late 2011:

Grant Fitzner, chief economist at the ONS, says:

“Inflation rose steeply in October to its highest rate in nearly a decade.

“This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels.

“Costs of goods produced by factories and the price of raw materials have also risen substantially and are now at their highest rates for at least 10 years

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

Inflation in the UK has soared to a 10-year high as rising energy bills, fuel costs, second-hand car prices and food hit families and businesses.

Data just released shows that the Consumer Prices Index surged to 4.2% in the 12 months to October, more than double the Bank of England’s inflation target.

This is the highest 12-month inflation rate since November 2011, the Office for National Statistics reports.

That’s up from 3.1% in September, and higher than City economists had expected.

It means the cost of living squeeze has intensified as a tough winter approaches. And it puts more pressure on the Bank of England to consider raising interest rates next month.

In October alone, prices rose by 1.1%.

The “main upward pressure came from electricity, gas and other fuels”, says the ONS, after the UK’s energy cap was lifted in October. That drove up household bills sharply, hitting vulnerable families hard.

The ONS says:

In April 2020, the energy price cap had been reduced causing electricity, gas and other fuels’ contribution to the CPIH headline rate to fall to negative 0.20 percentage points. But this fall was reversed in April 2021 with rises in gas and electricity prices.

The further price rises in October 2021 have compounded the April 2021 increases, resulting in 12-month inflation rates of 18.8% for electricity and 28.1% for gas. These are the highest annual rates for these classes since early 2009.

Rising petrol prices, and the cost of second hand cars, also drove inflation higher.

Average petrol prices were 138.6 pence per litre in October, compared with 113.2 pence per litre a year earlier.

That’s the highest recorded since September 2012, as the jump in crude oil prices fed through the pumps.

Used car prices jumped by 4.6% during October, and have surged by 27.4% since April 2021, as the shortage of semiconductor chips to build new cars pushed up demand.

The ONS adds that “restaurants and hotels, education, furniture and household goods, and food and non-alcoholic beverages” also made large upward contributions to higher inflation.

More details and reaction to follow....

Inflation’s a global problem right now, and hit a 30-year high of 6.2% in the US last month.

That helped to drive up spending on goods and services last month, as Ipek Ozkardeskaya, senior analyst at Swissquote, explains:

Yesterday was all about the US retail health, and the sales data looked good at the first sight. But in reality, it was mixed.

The US retail sales grew 1.7% in October, up from 0.8% printed a month earlier and better than 1.2% penciled in by analysts. That was the best month since March, however the jump was mostly because things costed more due to an inflation hovering around a three-decade high.

The good news is that people could spend more to buy less, the bad news is that an increasing number of people see their purchasing power hit significantly, the savings are melting and the most affected households’ pullback could, at some point, hit the headline number. As such, the strong retail sales data from the US is a half good news.

Inflation data from Canada, and updated numbers from the eurozone, will show how inflationary pressures are spreading.

We also get new US housing data, and the weekly oil inventory figures.

The UK’s FTSE 100 is set for a lower open, down around 0.3% premarket, while the US

The agenda

• 7am GMT: UK inflation report and producer prices index for October
• 9.30am GMT: UK house price index for September
• 10am GMT: Eurozone inflation report for October (final reading)
• Noon GMT: US weekly mortgage applications
• 1.30pm GMT: Canadian inflation report for October
• 1.30pm GMT: US building permits and housing starts
• 2pm GMT: Bank of England policymaker Catherine Mann takes part in a JP Morgan podcast
• 3.30m GMT: EIA weekly oil inventory figures