The EU has warned its GDP could slump by as much as 1.5pc if Putin cuts off all gas supplies to the continent.
The bloc said it would take the economic hit if the winter is cold and the region fails to take preventative measures to save energy.
It came as Brussels told member states to cut their gas consumption by 15pc over the next eight months in a bid to avoid shortages and blackouts this winter.
The measures are voluntary, but include a mandatory trigger should the supply situation deteriorate further.
Earlier today Putin threatened to slash gas supplies to Europe through a key pipeline by as much as 80pc, fuelling fears of a deepening crisis over winter.
The Kremlin has said it will restart flows through the Nord Stream link once maintenance work is completed tomorrow – averting fears of a full cut-off.
However, Putin said flows could drop to 20pc of capacity next week if sanctions prevented further maintenance work from being carried out.
Germany at risk of 5pc GDP hit over Russian gas, warns IMF
Germany is at risk of losing 4.8pc of its economic output if Russia shuts down gas supplies completely.
That’s according to the IMF, which said most of the impact would materialise next year, fuelled by production cuts and a slump in economic confidence.
It added that inflation could increase by around two percentage points in 2022 and 2023.
IMF researchers wrote: “The shut-off of Russian gas would have sizeable effects on German economic activity.
“These economic losses would be permanent in the sense that they are not ‘caught up’ by deferring production, consumption or investment to subsequent years.”
It comes after an IMF report singled out cuts in Russian energy imports as the “greatest threat” facing Europe’s largest economy.
Tech companies run hoses on the roof to cool servers in heatwave
Internet companies were forced to use hose pipes to protect their servers as temperatures surged on Tuesday, with Google and Oracle both suffering outages in the 40C heat.
Here’s more from Matthew Field:
The tech giants blamed Britain’s record-breaking heatwave for knocking their data centres offline. Google and Oracle, which provide backbone internet services to tens of thousands of websites, admitted they had struggled to keep server equipment cool.
Bloomberg reported on Tuesday that some companies were turning to low-tech methods to keep their equipment cool, including running hosepipes onto the roof to spray air conditioning vents.
“Many data centres in London will have people on the roof with hoses at the moment,” said Adrian Trevelyan, of Airedale International, which provides cooling systems for data centres.
On a customer service website, Oracle said problems with its “cooling systems” and “unreasonable temperatures” around its South London data centre had impacted its service on Tuesday.
Google, meanwhile, said it had been forced to shut down some of its servers “to prevent damage to machines and an extended outage” amid the searing heat. The blogging site WordPress was among those affected by the outages.
Dulux maker sales slump as DIY boom fades
A return to the office and the revival of foreign holidays dampened sales at Dulux maker AkzoNobel, as the end of Covid restrictions prompted a fall in DIY projects.
Hannah Boland has more:
AkzoNobel said it sold 9pc fewer pots of paint and coatings in the three months to the end of June compared to last year. The company said the results were “clearly impacted by two months of lockdowns in China” as well as European DIY stores not needing to order more products due to backlogs.
The company posted operating income of €205m (£175m) for the period, a 47pc drop on last year.
Chief executive Thierry Vanlancker pointed to “significant headwinds” in the period, including an “enormously big drop in footfall for consumers coming to DIY outlets” in Europe this spring.
“Consumers simply were not showing up,” he said. “Probably one of the leading ideas [why this happened] is that people were travelling or had other stuff to do than hanging around the house for once after the Covid period.”
Wall Street dips amid gas fears
Wall Street’s three main indices have fallen slightly at the opening bell as investors weigh up the latest corporate results and the threat of a cut-off in Russian gas supplies to Europe.
The S&P 500 dipped 0.1pc at the open, while the Dow Jones was down 0.2pc. The tech-heavy Nasdaq was little changed.
McLaren gets £100m funding boost for new car drive
McLaren Group is said to be closing in on a new cash injection worth more than £100m as it races to roll out its new supercar models.
The British car maker is on the brink of finalising a new equity raise that would give it access to at least £80m in new cash, Sky News reports.
Existing shareholders including Saudi Arabia’s sovereign wealth fund and its Bahrain-based counterpart Mumtalakat are expected to be among those backing the new fundraising.
The cash will be used to help McLaren deliver a new road car as the industry grapples with supply troubles and broader economic woes.
Its Artura hybrid supercar is set to be followed by a series of other new models in the coming years.
Uniper to pass price risers to consumers as rescue deal takes shape
The German Government plans to take a 30pc stake in Uniper and will allow the utility to pass on some energy costs to customers as part of a bailout package that could be finalised this week.
Berlin also plans to quadruple a credit line to the company via state-owned bank KfW, lifting it to €8bn (£6.9bn) from €2bn, according to an economy ministry document seen by Reuters.
The deal is expected to see the German state take a stake of up to 30pc, while it will also allow Uniper to pass on soaring prices to consumers.
Germany is scrambling to rescue Uniper, which has become a high-profile casualty of an economic standoff between the West and Russia. The crisis has sent gas prices soaring and raised fears of severe energy shortages this winter.
Oil declines ahead of US stockpile data
Oil has fallen after three days of gains as investors prepare for data that’s expected to show an increase in US inventories.
Benchmark Brent crude shed 1.8pc to trade just above $105 a barrel while West Texas Intermediate lost a similar amount.
Estimates from the American Petroleum Institute are expected to show US inventories of crude oil expanded by almost 2m barrels last week, Bloomberg reports.
Oil prices have fluctuated in recent days as traders weigh the risk of a recession, as well as broader market moves.
Leadership contender Penny Mordaunt champions trade deal despite fury in Whitehall
Penny Mordaunt has hailed a trade deal with North Carolina despite a row over her role in striking the agreement and unhappiness in Whitehall that she is using it to burnish her leadership credentials.
Tom Rees has the story:
The trade minister and challenger to succeed Boris Johnson promised that more deals with US states are in the pipeline as she attempts to win the support of her fellow MPs.
Ms Mordaunt has been attacked by International Trade Secretary Anne-Marie Trevelyan and former Brexit negotiator Lord Frost during an increasingly bitter race to become Prime Minister.
Some in Whitehall are unhappy the North Carolina deal has been struck in the middle of the contest. An official told The Sun it was “a complete systems failure” that the announcement was allowed to be made during the voting. They said: “Trying to take credit for the North Carolina deal in the middle of the race is totally inappropriate.”
Writing for The Telegraph, Ms Mordaunt said the strategy of deals with individual states “is paying off”, adding that more memorandum of understandings (MoUs) with Oklahoma and South Carolina are also set to be sealed in the coming months.
The UK has signed MoUs with Indiana and North Carolina after talks for a post-Brexit agreement with the entire country stalled.
Citi: Global recession is ‘clear and present danger’
A global recession is a “clear and present danger” and there’s about a 50pc chance of it happening.
That’s the latest grim warning from Citibank, which had it expected the world economy to grow 2.9pc this year ad 2.6pc in 2023 – slightly lower than previous forecasts.
That means global growth will be below trend, with the US and eurozone set to slip into mild recessions over the next 12 to 18 months.
In a note to clients, Citi economists wrote:
On balance, our forecast sees the global economy skating through and avoiding a synchronised downturn.
The risks to our forecast look skewed heavily to the downside. As such we also reaffirm our 50pc recession call articulated.
Global recession is, indisputably, a clear and present danger.
UK approves Sizewell C nuclear power station
The Government has given the green light to the development of the Sizewell C nuclear power station in Suffolk.
The £20bn project, led by EDF, would power 6m homes for the next 60 years.
A financing deal is still crucial and EDF wants to reach an agreement with the Government in the “near term”. The energy giant has said it’s still committed to the project despite its proposed nationalisation by the French state.
Getting Sizewell built will be key for the UK’s aim to triple nuclear capacity by 2050.
Read more on this story: Ministers approve funding for £20bn Sizewell C in major boost for EDF
US futures dip amid Europe’s gas fears
US futures have wiped out their early gains amid rising concerns that Europe will lose access to Russian gas.
Futures tracking the S&P 500 slipped 0.1pc and 0.2pc respectively, while the tech-heavy Nasdaq traded marginally lower.
Netflix bucked the wider downward trend, gaining more than 6pc in pre-market trading after its quarterly subscriber losses weren’t as severe as feared.
EU: Full Russian gas halt would hit GDP by 1.5pc
The EU has also warned that a full cut-off of Russian gas supplies to Europe could reduce average EU GDP by up to 1.5pc.
The bloc said the impact would be compounded by a cold winter and urged countries to prepare in advance.
Full cut-off in Russian gas still likely, warns EU
A full cut-off of Russian gas flows to Europe is still “a likely scenario”, even after Putin said supplies would resume through the Nord Stream pipeline.
That’s according to European Commission President Ursula von der Leyen, who said the bloc was still preparing for Russia to turn off the taps.
She told reporters: “Russia is blackmailing us. Russia is using energy as a weapon. And therefore, in any event, whether it’s a partial, major cut-off of Russian gas or a total cut-off of Russian gas, Europe needs to be ready.”
It came as the EU proposed a voluntary target for member states to cut gas use by 15pc until March.
EasyJet shareholders give green light for 50 new Airbus jets
EasyJet shareholders have voted in favour of an order for an additional 56 Airbus A320neo jets as the budget airline looks to secure a supply of planes for the rest of the decade.
Stephen Hester, easyJet chairman, said the board “believes the aircraft purchase will support positive returns for the business and the delivery of our strategic objectives”.
Founder Stelios Haji-Ioannou, who opposed the addition of more Airbus planes at the height of the pandemic, backed the latest deal, the FT reports.
That’s likely to come as a relief to other investors weary of battles between the airline and its largest shareholder.
Mr Haji-Ioannou also called for the removal of chief executive Johan Lundgren during the bitter dispute in 2020.
Weather ‘too hot’ for solar panels
ICYMI – The weather was too hot for solar panels on Tuesday as soaring temperatures reduced their efficiency.
Helen Cahill has more:
As the heatwave pushed the mercury above 40C for the first time ever in Britain, solar output remained well below the levels usually reached at peak times in spring.
Modelling data from the University of Sheffield suggests that solar energy provided an average 2.8 gigawatts of power on Tuesday.
Meanwhile in spring, when the weather is cooler and generation peaks, it typically accounts for 3.3 gigawatts, according to Josh Jackman, researcher at The Eco Experts.
Solar panels become less efficient when temperatures rise above 25C, meaning energy generation drops off, with efficiency decreasing by around 0.35 percentage points for every degree above this level.
Professor Alastair Buckley, of the University of Sheffield, said: “We never see peak output in mid summer.
“The temperature of the actual solar cell depends on a combination of the ambient temperature and the radiative heating from the sun and also cooling from wind. We saw cell temperatures of 70 degrees yesterday on our test system. Normally it would be between 40 degrees and 50 degrees.”
Collapsed energy firm Bulb attracts just one bid
Ministers are scrambling to salvage a deal for collapsed energy supplier Bulb after an auction to sell off the company attracted just a single bid.
The Government has been trying to sell Bulb since taking control of the company after it collapsed in the wake of soaring wholesale gas prices.
Final offers were due last month and only Octopus – the UK’s fifth largest energy supplier – tabled a bid, the Financial Times reports.
British Gas owner Centrica had been tipped to table a bid, but pulled out of the process last month. Masdar, an Abu Dhabi-based company, declined to submit a bid but may provide financing for Octopus, according to the report.
The tepid interest casts doubts over the future of Bulb. The rescue process is already estimated to have cost the taxpayer £2.2bn.
Fire halts trains between London and Peterborough
In addition to havoc at London Euston, King’s Cross has also been thrown into chaos due to the heat.
A fire across the line near Sandy in Bedfordshire yesterday means the East Coast Main Line route will be closed between London and Peterborough until midday.
David Horne, managing director of LNER, said there’d been a “huge effort overnight” but that trains were still out of action.
Next train strike will halt all services in some areas
Some parts of the country will have no train services during the next strike by thousands of rail workers, passengers are being warned.
Members of the RMT union at train companies and Network Rail will walk out for 24 hours on Wednesday July 27 in the bitter row over pay, jobs and conditions.
The strike will affect passengers travelling for holidays or attending events such as the women’s Euro 2022 semi-final in Milton Keynes on July 27, as well as the opening ceremony of the Commonwealth Games in Birmingham the following day.
Network Rail said a “very limited” timetable will be available across the country on the strike day, with around 20pc of services running and some parts of the country with no rail services.
Special timetables will be published this Saturday but Network Rail said trains will start later and finish much earlier than usual, and it told passengers to expect disruption and only travel if necessary.
It will be the fourth day of RMT strikes, which the network operator said will again bring “unnecessary and entirely avoidable” disruption for passengers.
Pendragon’s new car sales slump amid shortages
Pendragon, one of the largest UK car dealers, said it sold 12pc fewer new cars in the first six months of the year compared to a year ago amid a shortage of parts, writes Howard Mustoe.
This helped push prices up further, it said, as customers fought over the cars that were available.
A shortage of new cars is propping up used car sales, it added, and high prices helped boost its profit per car. The company has wiped out its £49.7m debt and is now sitting on £2.8m of cash.
It will make about £33m in profit for the first half of the year, down a little from last year’s record of £35.1m. The shares rose 4pc.
UK wealth gap increases by £300,000 since 2006
Britain’s wealth gap increased by £300,000 in the 14 years to 2020 as the richest 10pc of households pulled further ahead thanks to rising house and asset prices, according to the Resolution Foundation think tank.
Although their share of total wealth has remained stable since the 1980s, the gap in cash terms between them and the middle 10pc of households increased from £900,000 in 2006 to £1.2m in 2020, after adjusting for inflation.
Rising asset prices increased wealth by equivalent amounts across all households but the boom has meant those with larger pots to begin with moved ahead.
That’s driving bigger gaps in society just as the poorest face a collapse in real incomes, the think tank said.
Jack Leslie, senior economist at the Resolution Foundation, said:
Increasingly the UK is becoming fragmented and divided with too many families facing a bleak future.
As the cost-of-living crisis deepens it’s those on lower incomes who are most in need of a savings buffer to help them through these hard times. Yet they are the ones who are less likely to have any assets and have seen little growth in any assets they do own.
UK extends £4.5bn Recovery Loan Scheme by two years
The Government will extend a scheme offering government-backed loans to small businesses by a further two years.
Business Secretary Kwasi Kwarteng said: “The extension of the Recovery Loan Scheme will help ensure we continue to provide much-needed finance to thousands of small businesses across the country, while stimulating local communities, creating jobs and driving economic growth in the UK.”
The programme, which allows businesses to access loans of up to £10m, was initially launched in April 2021 to help businesses recovering from the pandemic.
Netflix shares rise despite shedding 1m users
Netflix shares have pushed 6.6pc higher in pre-market trading, even after it revealed a 1m drop in subscribers.
The streaming giant shed 970,000 users in the second quarter. But this wasn’t as bad as some had feared, meaning investors took cheer.
Here’s Matthew Field‘s story from last night: One million viewers abandon Netflix
Train chaos continues after heatwave havoc
The travel misery has continued this morning after the unprecedented heatwave sparked delays and cancellations across Britain’s railway network.
There were chaotic scenes in London Euston this morning as passengers scrambled to get a place on the few trains still running.
Avanti West Coast cancelled all services yesterday afternoon, saying the extreme heat had caused “mutiple incidents” across the network.
Climate protesters threaten to block M25 for rest of week
Climate protesters have threatened to block the M25 for the rest of the week, declaring the motorway a site of “civil resistance”.
Campaigners at Just Stop Oil said the were taking the action in protest against fossil fuel production after UK temperatures hit an all-time high of more than 40C.
They called for the Government to make a statement that it will immediately halt all future licensing and consents for the exploration, development and production of fossil fuels in the UK.
Just Stop Oil said:
We are therefore declaring the M25 a site of civil resistance against our criminal government.
We ask that no one travels on this motorway from Wednesday to Friday this week as we will be blocking the highway.
We fully acknowledge the cost and disruption this will cause to the public and ask that they take their demands for compensation to the government which has caused this unprecedented threat to our lives and liberties.
EasyJet’s Spanish pilots threaten to join strike
EasyJet’s Spanish pilots are threatening to join a walkout by cabin crew after talks to renew a collective agreement fell apart, newspaper El Pais reports.
Cabin crew in the country have announced three 72-hour strikes. The first two have already taken place, with a final walkout set for July 29-31.
EU to target 15pc gas cut amid Russia supply woes
The EU is set to propose a voluntary 15pc cut in gas use from next month amid lingering concerns Putin could turn off the taps.
The target would form part of the European Commission’s demand-reduction plan, due to be unveiled today.
It would also include a mandatory trigger if the situation worsens and voluntary curbs are insufficient, Bloomberg reports.
Russia has already slashed gas supplies to the continent, and European leaders are worried the cuts could deepen ahead of winter.
Putin has signalled that flows will resume tomorrow through the key Nord Stream pipeline, but it’s yet to be seen how curtailed those supplies will be.
Pound steadies after latest rise in inflation
Sterling has held its ground against a stronger dollar after inflation climbed to a fresh 40-year high.
The consumer price index rose to 9.4pc in June, although it fell back slightly when volatile food and energy prices were stripped out.
The data came after Andrew Bailey said Bank of England officials would consider a more aggressive 50 basis-point rise in interest rates next month.
Analysts were divided on whether the figures would prompt the MPC to hike by 50 basis points or stick to a more modest 25 basis-point rise.
The pound was little changed against the dollar at $1.1996. Against the euro it was also steady at 85.27p.
Rishi Sunak pledges ‘energy sovereignty’ by 2045
Rishi Sunak has pledged to secure make the UK energy self-sufficient by 2045 if he’s chosen as the next prime minister.
The Tory leadership hopeful told The Telegraph: “It has never been more important that our country achieves energy sovereignty, so that we’re no longer reliant on the volatility of the global energy supply.”
The former Chancellor said the target would be enshrined in law, and its implementation would be overseen by a new government department focused solely on energy.
He also said he would not relax a ban on onshore wind farms in England.
Mr Sunak is currently ahead in the contest for the Tory leadership. A final vote later today will narrow the field down to two candidates, before party members chose their new leader by postal vote.
Royal Mail union: Dry your eyes mate
The Communication Workers Union is set to wreak havoc with a postie walkout that will be the biggest strike of Britain’s so-called summer of discontent.
The Royal Mail said it was disappointed in the vote and would continue to seek an agreement.
The CWU’s response? Quoting a song by The Streets…
Royal Mail threatens to split in two if unions derail restructuring
Royal Mail has threatened to split its business in two if its restructuring plan is derailed by strikes.
The group will consider hiving off its main postal business from its more profitable international logistics division in a bid to protect its “value and prospects”.
Chairman Keith Williams said the UK division was losing £1m a day and that efficiency improvements had stalled
Shares in Royal Mail dropped 4.6pc in early trading, extending their decline this year beyond 45pc.
It comes a day after more than 115,000 postal staff voted to strike in what would be the biggest walkout by British workers this summer.
FTSE risers and fallers
The FTSE 100 has risen to a three-week high as investors bet on higher interest rates after inflation hit another 40-year high.
The blue-chip index climbed 0.5pc, driven by gains for oil and mining stocks.
Shell and BP were the biggest upward force, rising 0.8pc and 1.7pc respectively. Miners Rio Tinto and Glencore also made gains.
Advertising giant WPP rose 3.3pc after rival Omnicon reported better-than-expected quarterly results.
The domestically-focused FTSE 250 also rose 0.5pc to its highest level in three weeks.
Royal Mail dropped 4.5pc after reporting a 11.5pc drop in its quarterly UK revenue as consumers cut back on online shopping.
PwC: Tough time ahead for retailers
With inflation expected to peak in the autumn, retailers will be worried about their key trading period in the run-up to Christmas, says Lisa Hooker at PwC.
While energy prices – both household utilities and petrol – continued to be the biggest contributors to the increase in inflation in June, food, hospitality and leisure were the only other areas to see big increases compared with May, with almost all other categories unchanged or slightly declining.
With input price pressure due to commodity price increases and labour shortages, it’s no surprise that supermarkets have had to start to pass on price increases to shoppers. We’ve already seen more shoppers trading down to own label, and manufacturers adjusting pack sizes – so-called ‘shrinkflation’ – to try and help customers manage increasing grocery bills.
Looking ahead, there is no sign that the grocery price increases will abate for the rest of the year. Combined with the anticipated energy price cap increase in autumn and falling consumer confidence more generally, there’s likely to be a squeeze in discretionary spending. It’s already started as we can see from retailer profit warnings.
Without a significant easing of the inflation burden in the autumn, it’s looking like it will be a difficult Golden Quarter for retailers.
Reaction: Inflation hits luxury goods for first time
Matt Jochim, partner at McKinsey & Company, says even the luxury sector isn’t immune from the cost-of-living crunch.
Consumers are trading down. Shoppers are switching brands, trying private label brands, and shifting to discount stores.
McKinsey research shows 77pc of shoppers switched to a low cost or private label brand for household products, 61pc for healthcare, beauty, and baby products, and 46pc for alcohol.
It’s also the first time we are seeing inflation bite in luxury items like jewellery.
More than two thirds (69pc) of UK consumers lack confidence in the UK economy and 74pc expect prices to continue to rise for the next 12 months.
Reaction: Inflation on track for double digits
Hussain Mehdi at HSBC Asset Management also warns the worst is yet to come, with inflation set to top double digits for the first time since the early 1980s.
The intense cost-of-living squeeze is putting significant pressure on the UK’s consumer-led economy and means the risk of recession is high.
Nevertheless, the Bank of England is likely to remain in uber-hawkish mode as it attempts to counter the risk of a wage-price spiral developing with recent data suggesting a still hot labour market that is contributing to domestic inflationary pressures.
We think a 50bp hike at the August meeting is likely as well as further tightening at subsequent meetings this year.
However, despite this difficult economic backdrop, UK equity market performance has been relatively resilient this year with blue chip indices finding support coming from higher commodity prices and exposure to value and defensive names, as well as limited tech sector exposure.
Reaction: More pain on the way
Yael Selfin, chief economist at KPMG UK, warns more pain is on the way for families.
With further energy bill increases due to take effect from October, the peak in inflation is still some way off, and is not expected to return to the 2pc target before mid-2024.
This means more pain is on the way for household budgets as the high rate of inflation continues to outpace wage growth, bringing down the real value of incomes across the UK.
Grocery prices keep rising
As well a the record increase in pump prices, there are also worrying signs of runaway grocery inflation.
Tim Wallace digs into the numbers:
Food prices climbed by almost 10pc, the sharpest increase since March 2008 when Britain was reeling from the financial crisis and the weak pound sent import costs surging.
Flour is up by almost one-fifth on the year, with bread up 9.7pc and pasta 15.9pc.
Meat prices are up by one-tenth compared to June 2021, with a beef roasting joint now averaging £11.31 per kilogram, lamb chops at £16.07 per kg, and pork sausages £5.81 for the same weight.
A pint of milk now costs 55p, up from 42p a year ago.
The cost of home furnishings is up by almost 15pc, with garden furniture up one-quarter. Fridges and freezers cost 13.1pc more than they did a year ago, amid widespread supply problems in part due to a lack of microchips required for the machines’ electronics.
For similar reasons a new car will set you back 7pc more now than it did a year ago, the biggest increase since records began in 1997. However second-hand cars became a little cheaper on the month, though prices remain around 15pc higher than they were in June 2021.
FTSE 100 opens higher
The FTSE 100 has pushed higher at the open even after new figures showed inflation at a fresh 40-year high.
The blue-chip index rose 0.5pc to 7,332 points.
How do we compare to other countries?
The UK isn’t alone in its inflation crisis. Russia’s war in Ukraine, combined with continued supply chain troubles sparked by the pandemic, mean price pressures are being felt around the world.
But at 9.4pc, Britain’s inflation rate stands above that of the eurozone and the US. It’s just behind Ireland’s.
Switzerland’s inflation stood at just 3.4pc last month, though that’s still a 29-year high for the country.
It could be worse, though. Turkey’s rate of inflation jumped to almost 80pc last month…
Reaction: Price rises ‘aren’t scary’
Not all analysts think the Bank of England should act more aggressively.
FX specialist Viraj Patel argues that June’s price gains aren’t “scary” in the same way as during the first quarter of this year.
Instead, he says most of the rises are more “normal” and points to some marginal improvements.
He raises the question of whether a big 50 basis-point rate rise by the Bank of England would be the result of peer pressure from other central banks and fighting talk from the Tory leadership candidates.
Reaction: Bar has been met for bigger rate hike
Hugh Gimberat JP Morgan Asset Management also thinks the Bank should raise rates by 50 basis points.
At the Bank of England’s last meeting, policymakers stressed their commitment to tighten policy more forcefully if they see signs that inflation is increasingly persistent. That is exactly what this report has delivered.
Goods inflation is still pushing higher, while the acceleration in more domestically generated services inflation will be of particular concern given its “stickier” nature.
Taken in aggregate with yesterday’s wage growth data, it appears clear that the bar has been met for the Bank to increase interest rates by 0.5pc in early August.
IoD: Bank of England feels the pressure from inflation
Kitty Ussher, chief economist at the Institute of Directors, says the Bank of England will be under pressure to take tougher action on inflation.
The headline inflation figure continues to be driven by the increased cost of household fuel and transport, combined with higher prices in the hospitality sector compared to a year ago.
The latest monthly increase is primarily due to the rising price of petrol, with the average price of a litre rising by 18p in June. The last month has also seen a price rise in some detailed food categories notably dairy products, where prices had fallen a year ago.
Much of the explanation for the inflation rate is international. But given that further rises in the headline rate are expected when the household energy cap is increased in the autumn, the Bank of England is nevertheless feeling the pressure to demonstrate it is doing everything within its power to tackle those components of inflation that are home-grown.
Price rise breakdown
Let’s break down the figures in a little bit more detail.
As mentioned, fuel prices were the biggest driving force behind June’s rise in inflation. They partially offset a decline in prices for second-hand cars, as well as audio-visual equipment.
But the pain is still spreading throughout the economy.
Restaurants and accommodation prices rose 8.6pc in June, up from 7.6pc in May. Food and non-alcoholic drink prices surged by 9.8pc – the most since March 2009.
Producer price index hits 45-year high
If there were any doubts that more pain is on the way, the producer price index should put those to bed.
PPI, which measures the price of goods leaving factories, jumped to 16.5pc in June from 15.7pc the previous month. That’s the highest since September 1977.
The increase was driven by the fastest ever rise in raw material prices. Metals and non-metallic minerals as well as food products were the main contributors, according to the ONS.
PPI is often considered a measure of inflation before it hits consumers, so the numbers suggest shop prices will just keep rising.
What will Bailey do?
With the latest inflation figures coming in even higher than expected at 9.4pc, all eyes will now by on the Bank of England.
Here’s more from my colleagues Tom Rees and Simon Foy:
The Bank of England is poised to unveil the biggest increase in interest rates for almost 30 years, Governor Andrew Bailey suggested as he hit back against a barrage of attacks by Tory leadership candidates.
Mr Bailey said rate-setters have put a 50 basis point increase “on the table” for the next meeting in August, the strongest signal yet that the Bank will step up efforts to bring inflation down from a 40-year high.
The Governor last night also launched a staunch defence of the Bank of England, warning that its independence is “now more important than ever” following unprecedented criticism from Prime Minister hopefuls.
The Bank’s Monetary Policy Committee has already voted for five back-to-back rises after inflation hit a 40-year high of 9.1pc, taking the base rate from 0.1pc to a post-financial crisis high of 1.25pc.
But Mr Bailey signalled the Bank could quicken the pace of rate rises from 25 basis points to 50 in what would be the biggest hike since 1995, before it gained independence.
Forecourt chaos pushes up prices
The latest ONS figures also show how much of an impact surging pump prices have had on inflation.
Transport – which primarily consists of petrol and diesel – gained 1.6pc percentage points in June, making it the largest upward contribution to the wider rate of inflation.
Petrol prices rose 18.1p over the month, marking the biggest increase since records began in 1990.
Core inflation slows
For the optimists, there’s one glimmer of hope in the numbers.
The core consumer price index – which excludes volatile food and energy costs – actually fell back slightly to 5.8pc in June from 5.9pc the previous month.
This could be taken as a good sign that inflationary pressures in the wider economy are beginning to slow, even as the energy shock caused by Russia’s war in Ukraine continues.
It’s unlikely to offer much relief, though. With the energy price cap set to rise again in October, all signs point to further increases in inflation. The Bank of England expects CPI to peak above 11pc later in the year.
What’s driving inflation?
Once again, it was energy bills that drove inflation to new highs in June.
Contributions to housing and housing services – which includes gas and electricity bills – as well as transport, which includes petrol and diesel prices, account for around half the annual consumer price index, according to the ONS.
ONS: Raw material prices surge at fastest pace on record
Grant Fitzner, chief economist at the ONS, said:
Annual inflation again rose to stand at its highest rate for over 40 years.
The increase was driven by rising fuel and food prices, these were only slightly offset by falling second-hand car prices.
The cost of both raw materials and goods leaving factories continued to rise, driven by higher metal and food prices respectively.
These increases saw raw materials post their highest annual increase on record, with manufactured goods at a 45-year high.
Inflation rises again
Another month, another rise in inflation.
The consumer price index jumped to 9.4pc in June – up from 9.1pc the previous month and another 40-year high.
Once again, energy and food were the main driving forces behind the increase, which also covered spending during the Jubilee bank holiday weekend.
The figures are likely to increase the pressure on the Bank of England to deliver a sharp rise in interest rates at next month’s MPC meeting.
The Bank has forecast that inflation will peak at more than 11pc in October when the energy price cap rises again. However, it must also balance efforts to curb prices with the risk of tipping Britain into a recession.
5 things to start your day
1) Train operators seek to scrap peak and off-peak rail fares Passengers could instead face airline-style surge pricing model
2) Why British workers’ pay squeeze will last even longer than previously feared As businesses run low on cash to hand to staff, short-term measures to support earnings are fading
3) One million viewers abandon Netflix Success of Stranger Things prevents even worse exodus
4) Weather ‘too hot’ for solar panels Power output during heatwave drops below levels typically reached in spring
5) Britain runs dry as wasteful water industry springs a leak Another hosepipe ban looms over UK, with water firms in spotlight over wastage and leaks
What happened overnight
Shares in Netflix were up nearly 8pc in after-hours trading last night following the streaming giant’s “better-than-expected” loss of 1m subscribers.
Asian shares extended a global rally this morning as strong US corporate earnings and the expected resumption of Russian gas supply to Europe helped lift sentiment and ease fears of a recession, while the dollar was mired near two-week lows.
MSCI’s broadest index of Asia-Pacific shares outside Japan surged 1.1pc in early Asia trade, driven by a 1.5pc jump in resources-heavy Australia, a 1.1pc gain in South Korean shares and 1.5pc jump in Hong Kong stocks. Japan’s Nikkei surged 2.1pc.
Coming up today
- Economics: Consumer price index (UK), producer price index (UK), retail price index (UK), interest rate decision (China), consumer confidence (EU)
- Corporate: Centamin (interims); Antofagasta, Liontrust Asset Management, Premier Foods, Royal Mail (trading update)