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Inflation takes off on higher air fares and energy prices

UK inflation was higher in April, as the Easter getaway rush boosted air fares and the higher energy price cap was introduced.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) was 2.1% last month compared with 1.9% in March.

Economists had been expecting inflation to rise to 2.2%.

It is the first time in 2019 that the rate has risen above the Bank of England’s 2% inflation target.

Household bills were one of the main contributing factors to the higher rates, after increases to Ofgem’s energy price cap came into effect.

Electricity and gas prices rose 10.9% and 9.3% respectively between March and April.

Transport costs were also higher, especially for flights, due to the timing of Easter. Coming at the end of the month, the holiday helped to push air fares up by 26.4%.

But travellers also paid more for other forms of transport, with international rail, coach and sea fares all rising.

However the timing also contributed to a downward effect from hotels, where the cost of overnight stays rose by less than a year ago.

Meanwhile, drivers faced higher costs at the pumps as motor fuel prices rose.

ECONOMY Inflation
(PA Graphics)

Petrol prices rose by 3.8p on the month to 124.1p per litre. This was a bigger rise than the same time last year, when prices were up 1.5p.

Diesel was also pricier, climbing 2.3p to 133p per litre.

The largest downward contribution came from recreation and culture, especially in the volatile computer games category. Prices for games are calculated based on the bestseller charts, meaning they can vary depending on the number and popularity of new releases.

Prices in the games, toys and hobbies category were down 5.8% on the month, compared with a smaller decline of 1.6% last year.

(PA Graphics)
(PA Graphics)

Cigarettes and beer, especially cans of lager, also had lower prices. The wider alcohol and tobacco category was down 0.4%, despite a 2.1% uplift in the price of spirits.

The CPI, including owner-occupiers’ housing costs (CPIH) – the ONS’s preferred measure of inflation – was 2% in April, up from 1.8% in March.

The Retail Prices Index (RPI) was 3%, up from 2.4% in February.

Higher inflation would usually bring pressure on the central bank to raise interest rates – but these are far from normal times

Ben Brettell, Hargreaves Lansdown

Ben Brettell, senior economist at Hargreaves Lansdown, said the inflation rate had received a muted reaction from the markets, and may have little weight in the Bank of England’s decision on whether to raise interest rates.

“Higher inflation would usually bring pressure on the central bank to raise interest rates – but these are far from normal times,” he said.

“The MPC is rightly reluctant to tweak policy while Brexit hangs over the economy like the Sword of Damocles.”

Source: BT.com

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UK inflation rises in April by less than Bank of England expected

UK inflation rose last month by less than the Bank of England and investors had expected, but still hit its highest level this year, pushed up by a rise in energy bills.

Consumer prices rose at an annual rate of 2.1% in April after a 1.9% increase in March, the Office for National Statistics said on Wednesday. A Reuters poll of economists had pointed to a rate of 2.2%, the same as the BoE’s forecast.

Sterling and government bonds were little changed by the data as core inflation, which excludes energy and food prices, held steady at 1.8% for the third month in a row.

“In principle, this is another reason to think the Bank of England will keep rates on hold for the foreseeable future,” ING economist James Smith said.

But he added that a strong labour market meant an interest rate hike in November could not be ruled out.

A recent weakening of inflation, combined with the lowest unemployment rate in 44 years and rising wages, has taken the edge off the uncertainty about Brexit for many households whose spending drives Britain’s economy.

But Britain’s energy regulator raised a price cap on energy providers by 10% with effect from April, and all big six suppliers raised their standard prices by the same amount, which the BoE said would push inflation above target briefly.

Electricity and gas prices were the biggest driver of inflation last month, the ONS said. Computer game and package holiday prices helped to offset the impact of the higher bills.

The ONS figures also suggested less short-term pressure in the pipeline for consumer prices than expected.

Manufacturers’ costs for raw materials – many of them imported – were 3.8% higher than in April 2018, much less than the 4.5% rise predicted by the Reuters poll.

The ONS said house prices in March rose by an annual 1.4% across the United Kingdom as a whole compared with 1.0% in February, marking the first increase in house price inflation since September. Prices in London alone fell by 1.9 percent, a smaller drop than in February.

The ONS also revised down its estimate for Britain’s budget deficit in the last 2018/19 financial year that ended in March.

The headline measure of public sector net borrowing amounted to 23.5 billion pounds that year or 1.1% of gross domestic product, compared with the previous estimate of 24.7 billion pounds or 1.2% of GDP.

In April, the first year of the 2019/20 financial year, the deficit stood at 5.8 billion pounds, as expected by economists.

Reporting by Andy Bruce; Editing by Alison Williams

Source: UK Reuters

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Sterling set for worst week of 2019 as Brexit talks collapse

Sterling dived to a four-month low on Friday after cross-party Brexit talks collapsed and concern grew about the impact Prime Minister Theresa May’s likely resignation would have on Britain’s EU divorce.

The pound has traded in a narrow range of $1.29-1.32 since Brexit was delayed in late March, but following weeks of talks between May’s Conservatives and the opposition Labour Party that yielded nothing the currency slumped out of its narrow range.

May has agreed to set out a timetable for her departure in early June when parliamentarians are likely to again vote against her thrice-rejected EU withdrawal agreement..

That raises the prospect of a Conservative leadership battle producing a more Eurosceptic British leader who could move Britain towards a no-deal Brexit, the worst case scenario for sterling.

“What we’re seeing is the market pricing in a higher probability of an exit without a deal,” Adam Cole, chief currency strategist at RBC Capital Markets, said, noting the growing risk that the bill would fail to pass and May would depart before parliament goes into recess in late July.

“It looks increasingly likely she will be replaced by a pro-Brexit PM with no election, and that automatically increases the chances of a no-deal Brexit.”

Sterling was down for a tenth consecutive session, touching a four-month low of $1.2733 and falling 0.6% against the euro to 87.61 pence, the lowest since February 15.

It is now set for its worst week since February 2018, and a further fall would make it one of the worst weeks in well over a year.

For a graphic on Sterling set for worst week in months, see – tmsnrt.rs/2WVBGSp

Another outcome could be no Brexit at all — a boon for the pound — or the possibility of a general election and a Labour government in power.

“The market doesn’t like elections at the best of times, and given it has a natural capitalist orientation, it’s not a surprise it worries over this (possible) Labour government,” said Neil Mellor, senior currency strategist at BNY Mellon.

On Thursday, the head of Britain’s National Grid criticised Labour’s plans to re-nationalise energy networks, saying that would increase costs for consumers and might prompt legal challenges.

Next week’s European parliamentary vote is another cause for concern, with Nigel Farage’s Brexit Party on course to pick up 34% of the vote, more than the Conservative and Labour parties combined.

Reporting by Abhinav Ramnarayan, editing by Gareth Jones

Source: UK Reuters

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Brexit Going Nowhere: Pound Drops to Three Month Low

The Pound hit a three-month low on Wednesday as investor sentiment soured on the lack of Brexit progress. Against its peers, the British Pound has become the worst performing currency this week as markets lose hope that Theresa May will be able to get her Brexit deal across the line on her fourth attempt next month. 

Brexit Goes Nowhere, British Pound Exchange Rate Hits Three-Month Low

It’s been almost three years since the monumental vote took place, and there’s still no deal in place, despite a Brexit day extension. The risk of a hard Brexit has also increased, with most of Theresa May’s successors seen as hardline Brexiteers. Sterling has tumbled by around 1.2% in five days, a far cry from earlier in the year when it was one of the market’s most impressive performers.

Maximilian Kunkel, UBS Wealth Management Chief Investment Officer for Germany, said:

‘We don’t think it makes any sense at the moment to trade in U.K. government debt. We have become relatively cautious on the U.K. in any case, given no matter what Brexit you’re going to get, in the end the U.K. economy is likely going to suffer from it.’

Meanwhile, Eurozone growth data surprised today, coming in at 0.3% quarter-on-quarter in Q1 on a seasonally adjusted basis, rather than the 0.4% expected. On the year, Q1 jumped from 1.2% to 1.3%.

The rest of the week is relatively quiet for Eurozone and UK domestic data, meaning a lot of the Pound to Euro (GBP/EUR) exchange rate’s movements will be determined by developments elsewhere and political events. The Pound to Euro exchange rate has been trending in the region of 1.1488, hitting highs of 1.1535, and residing at lows of 1.1445. The Pound to US Dollar (GBP/USD) exchange rate has hit lows of 1.2826 in today’s European session, with highs of 1.2923.

BY CHARLIE MURRAY

Source: Currency News Centre

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Sterling steady as cross-party Brexit deal hopes linger

Sterling was little changed on Monday after a newspaper report suggested the British parliament might still reach a cross-party deal on Brexit, though doubts about such an agreement kept the currency from gaining.

Up to 150 lawmakers from Britain’s opposition Labour party would reject an agreement that did not include a referendum confirming it, the Guardian newspaper reported shadow Brexit secretary Keir Starmer had said.

Many members of the ruling Conservative party oppose a second referendum, but the fact talks are still being held is keeping sterling from booking losses, analysts said.

“Most investors would see a sterling-positive view on a second referendum,” said Rabobank FX strategist Jane Foley.

Sterling was flat at $1.30 against the dollar — roughly the middle of the $1.2851-$1.3190 range of recent weeks — and 86.53 per euro.

“The market is just suffering from Brexit fatigue. UK assets are significantly underowned by global investors so if you are underweight and still see no progress on Brexit and significant volatility on other parts of your portfolio that’s what you will focus on,” said Justin Onuekwusi, portfolio manager at L&G Investment Management.

Investors will also be unwilling to commit too far either way before UK labour market data due on Tuesday. The British economy has outperformed expectations, but the market will be watching for signs that stockpiling by British companies before Brexit has hurt employment, Foley said.

“Recent better UK data are likely to be a high point in positive sentiment. Driven by stock-building, a period of payback is likely,” Natwest Markets said in a note.

With business investment curtailed by Brexit uncertainty, the Bank of England is unlikely to raise interest rates, they said.

Sterling buyers brushed aside an opinion poll that showed UK Prime Minister Theresa May’s Conservatives had slumped to fifth place before European parliamentary elections and Nigel Farage’s Brexit Party had surged.

Reporting by Abhinav Ramnarayan, editing by Larry King and Ed Osmond

Source: UK Reuters

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BoE’s Saunders does not expect UK rates to rise ‘far or fast’

The Bank of England is unlikely to raise interest rates far or fast, even if the economy picks up following a smooth Brexit, Monetary Policy Committee member Michael Saunders said in an interview published on Thursday.

Business investment would probably strengthen following a smooth Brexit but a series of “cliff edges” could cause it to continue to stagnate, Saunders told the Northern Echo newspaper during a visit to northeast England.

“I would expect interest rates will go a bit higher over time, but it won’t be far or fast,” he said.

A ‘neutral’ level for interest rates, which would neither stimulate nor slow the economy, was probably around 2 percent, compared to 5 percent before the 2008 financial crisis, Saunders added.

The Bank of England last raised interest rates in August, increasing them by a quarter of a percentage point to 0.75 percent. Financial markets see little chance of a rates rising this year while it remains unclear on what terms Britain will leave the European Union.

The BoE has long said interest rate rises will most likely be limited and gradual, but last week Governor Mark Carney said markets had gone too far in assuming rates would rise just once over the next three years.

However, on Tuesday the BoE’s chief economist, Andy Haldane, stressed the ongoing uncertainty over Brexit and said it would be “deeply arrogant” to say markets were wrong about the outlook for interest rates or the economy more broadly.

Saunders, the first BoE policymaker to vote for interest rates to rise last year, said Britain had missed out on two to three years of business investment growth since June 2016’s referendum decision to leave the EU.

A smooth Brexit transition to a trading relationship with the EU that was closer than Canada’s, but more distant than Norway’s, “probably wouldn’t be as bad as many businesses fear,” Saunders said.

“No-deal Brexit would be off the table, business investment would recover a bit, the economy would continue to grow steadily and the jobless rate would probably fall,” he added.

By contrast, a no-deal Brexit would most likely cause sterling to fall and push up inflation, as well as causing business investment to fall further.

“That would be painful,” he said.

Reporting by David Milliken, editing by Andy Bruce; Editing by Toby Chopra

Source: UK Reuters

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Pound slides to one-week low as Brexit talks falter

Sterling slumped on Wednesday on signs that Brexit talks between Britain’s government and the main opposition party may soon collapse.

The pound has been falling as negotiations between the Conservative and Labour Parties lumber on with little success and as concerns grow about a challenge to Prime Minister Theresa May’s leadership.

But a suggestion by broadcaster ITV’s political editor that the talks could be pronounced dead later on Wednesday took sterling down another leg.

The pound dropped below $1.31 for the first time in a week, down 0.6 percent on the day. It also hit a six-day low versus the euro of 86.24 pence, again down 0.6 percent on the day.

Volatility in currency markets is currently very low and in recent weeks investors have also curtailed their bets on big swings in the pound.

(Graphic – GBP vol vs others, tmsnrt.rs/2WwASTs)

The government conceded on Tuesday that Britain would take part in European Parliament elections this month, a poll that could deliver more bruising results to both major parties.

“The announcement that the UK will take part in European elections confirms that cross-party Brexit talks aren’t going anywhere fast. This also refocuses attention on a leadership challenge to May. Favour the pound to “$1.2950,” said ING analysts in a note to clients.

Some analysts attribute sterling’s recent tepid performance to major risks that could yank the currency either way.

“To the upside, the probability of no Brexit via a second referendum and vote to remain… has started to edge up again in recent days. The downside is associated with.. the risk of May being replaced as PM which is rising,” said RBC’s chief currency strategist Adam Cole.

May agreed a withdrawal deal with the EU last year, but it was rejected three times by a deeply divided British parliament. That delayed the exit date, a postponement that has weighed on the pound as investors fret about prolonged political uncertainty.

Sterling has traded in a narrow range of $1.28-$1.31 since Britain pushed its scheduled departure from the European Union back from March until Oct. 31. There is still little clarity about when, how, or even if, Brexit will happen.

Investors have been broadly impervious to tepid economic data recently and even relatively hawkish comments from the Bank of England last week failed to jolt the currency.

(Graphic – Trade-weighted sterling since Brexit vote, tmsnrt.rs/2hwV9Hv)

Reporting by Tom Finn and Saikat Chaterjee; Editing by Kirsten Donovan and Alexandra Hudson

Source: UK Reuters

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BoE’s Haldane: ‘Deeply arrogant’ to assume markets wrong on rates

Policymakers would be “deeply arrogant” to assume financial markets or other forecasters are definitely wrong about the outlook for interest rates or the broader economy, Bank of England chief economist Andy Haldane said on Tuesday.

Last week BoE Governor Mark Carney said investors were underestimating how much interest rates could rise, even as the British central bank kept borrowing costs on hold due to Brexit uncertainty.

Haldane said in a question and answer session after a lecture at the University of Sheffield that due to unusually high economic uncertainty related to Brexit, it was reasonable for others to take a different view on the outlook to the bank.

“I think such is the uncertainty right now – for all sorts of reasons, all sorts of obvious reasons about the future course of the economy, it’s not in anyone’s interests to say the markets are wrong and we are right. That would be deeply arrogant,” he said.

“It’s implausible that anyone has a crystal ball on how the economy will evolve. Last week we gave the Bank of England’s view on the economy, having made some assumptions about, for example, how Brexit might play out. Time will tell whether that view comes to pass,” Haldane added.

Reporting by David Milliken, editing by James Davey

Source: UK Reuters

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Sterling slides to day’s low on Brexit nerves, pressure on PM May

Sterling slid nearly half a percent on Monday on rising concerns about the progress of Brexit negotiations and worries Prime Minister Theresa May is facing a mounting challenge to her leadership.

May is set to meet Graham Brady, chairman of an influential committee representing members of parliament from her Conservative party, amid calls for her to set a date to step down, the BBC reported.

“Currently Theresa May is walking on thin ice as the latest reports indicate a revolt against her could take place. MPs (Members of parliament) are probably not satisfied with cross-party talks so far. Therefore the pound is being dragged down as another dose of uncertainty hits the market,” said Marc-André Fongern of MAF Global Forex.

The British currency was generally weak across the board, reserving some of its biggest losses against the dollar and the low yielding Japanese yen.

Against the dollar, the pound slipped as much as 0.5 percent to $1.3040 before recovering slightly to trade 0.4 percent down at $1.3051.

It also weakened a quarter of a percent against the euro at 85.69 pence and 0.7 percent against the yen at 144.21 yen.

A dollar rising at the start of the U.S. trading session also hit the pound.

“There is broad dollar strength across the board but it is being felt more acutely through sterling,” said Kamal Sharma, a director of G10 FX strategy at Bank of America Merrill Lynch.

Britain’s Conservative government and the opposition Labour Party resumed Brexit talks to try to find a way to break the deadlock in parliament over the country’s departure from the European Union.

May agreed a withdrawal deal with the EU last year, but it was rejected three times by a deeply divided British parliament. That delayed the exit date, a postponement that has weighed on the pound as investors fret about prolonged political uncertainty.

Sterling has traded in a narrow range of $1.28-$1.31 since Britain pushed its scheduled departure from the European Union back from March until Oct. 31. There is still little clarity about when, how, or even if, Brexit will happen.

Investors have been broadly impervious to tepid economic data recently and even relatively hawkish comments from the Bank of England last week failed to jolt the currency.

Overall volatility in the currency markets remained near five-year lows and net positions by hedge funds in sterling have slipped back into negative territory.

For a graphic on Sterling/dollar three-month implied volatility, see – tmsnrt.rs/2DLBsWn

Reporting by Tom Finn; Additional reporting by Saikat Chatterjee and Thyagaraju Adinarayan; Editing by Janet Lawrence and Peter Graff

Source: UK Reuters

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Rates to be held at 0.75% as Brexit ‘fog’ overshadows growth spurt

The Bank of England’s latest rates decision comes amid signs that Brexit stockpiling has boosted recent economic growth figures.

Bank of England policymakers are set to hold interest rates at 0.75% on Thursday as Brexit uncertainty overshadows a strong start to the year for the economy.

The Bank’s latest rates decision – which will be accompanied by its quarterly Inflation Report forecasts – comes amid signs that Brexit stockpiling has boosted recent economic growth figures.

Data suggests the economy may have expanded by at least 0.4% in the first quarter, up from 0.2% in the final three months of 2018.

But this was largely due to “no deal” precautionary stockbuilding ahead of the original March 29 Brexit deadline and relatively mild weather, which experts believe will unwind in the April to June quarter.

The MPC may see the extension of Brexit as prolonging the uncertainties facing the UK economy and increasing downside risks

Howard Archer, EY Item Club

The latest manufacturing sector survey figures suggest this has already started, with a slowdown in activity seen in April after a surprisingly buoyant March.

Given the six-month EU departure delay, the “fog” of Brexit – as Bank Governor Mark Carney put it earlier this year – is unlikely to lift for some time and policymakers are seen remaining firmly in wait-and-see mode.

Howard Archer, chief economic adviser to the EY Item Club, said: “The MPC (Monetary Policy Committee) is likely to hold off from hiking interest rates until the Brexit situation becomes clearer and it can see how the economy is responding.

“Indeed, the MPC may see the extension of Brexit as prolonging the uncertainties facing the UK economy and increasing downside risks.”

Investec economist Philip Shaw said worries over the state of the global economy have also increased in recent months, which is “likely to provide the main argument for keeping rates steady this time”.

But economists are increasingly expecting pressure building for the MPC to consider raising rates later in 2019.

Investec believes one member – Michael Saunders – may even vote for a hike on Thursday.

The Bank is expected to nudge its 2019 growth forecasts higher in the accompanying inflation report thanks to the stockpile-boosted first quarter.

It slashed its growth forecast to 1.2% in the February report, which would mark the weakest expansion since 2009, when the economy was in a recession following the financial crisis.

The Bank may also up its inflation outlook, despite the Consumer Prices Index remaining steady at 1.9% in March, with rising oil costs and the recent increase in Ofgem’s energy price cap set to have an effect.

“The MPC will find a case for higher rates increasingly compelling as the year draws on,” said Mr Shaw.

He is pencilling in a hike to 1% in November, although this is based on a Brexit deal being reached, while Mr Archer said the odds favour rates being held throughout 2019.

The Bank’s rates announcement also comes after the Treasury announced last week that it had kicked off the search for Mr Carney’s successor.

It is using a headhunter for the first time to look for a replacement ahead of his departure next January.

Source: Express and Star