Low pound causing price rises
Inflation higher than forecast as Brexit pressures mount
Inflation rose to 2.3% in February, higher than the 2.1% forecast and topping the 2% mark for the first time since November 2013.
Price increases for food and fuel have pushed up the cost of living from 1.8% in January. The February figure is due out at 9.30am.
Inflation is now above the Bank of England’s 2% target rate. Prices have been rising largely on the rising cost of imports caused by the fall in the pound.
The figure prompted shares to dip as sterling hit a three-week high.
The blue-chip FTSE 100 index with its majority foreign-currency earning constituents, tends to gain from a weaker pound. The index closed down 0.69% at 7,378.34.
Data from Moneyfacts reveals that the savings market is showing encouraging signs of improvement. The number of rate rises now outweighs the number of reductions for the second month running.
In the month of February, it recorded 87 savings rate rises, with some increases being by as much as 0.50%. This dwarfs the 27 rate reductions that have taken place over the same period. As a result, the average two-year fixed rate has risen above November 2016 levels, reaching 1.10%.
However, despite the boost to savings rates there are still very few accounts to choose from that match or beat inflation. Today, only 1 out of 793 savings accounts currently on the market can beat or match inflation.
TUC General Secretary Frances O’Grady said: “Working people across the UK are now facing the double blow of rising prices and slower wage growth.
“If the government doesn’t wake up, we risk sleepwalking into another living standards crisis. We urgently need more investment in skills and infrastructure to build strong foundations for better paid jobs. And it’s time to scrap the pay restrictions hitting hardworking teachers, nurses and other public servants.”
Richard Theo, chief executive of Wealthify, said: “Inflation is the grim reaper of cash savings, and now that it has risen above the Bank of England’s target to 2.3%, it will be more deadly than ever.
“We are suffering a silent savings crisis. Rising inflation is another blow to Britons who already suffer rock-bottom interest rates and minimal returns from their cash savings. When inflation sat at 1.8% it was wiping £7.98bn from Britain’s £700bn cash savings annually. With no movement from the MPC on base rate, inflation will continue to erode billions of pounds every single year.
“With inflation at its highest level since 2013, the cash savings account has become the finance equivalent of the chocolate teapot.”
CBI Industrial data
The UK’s manufacturers report that export order books have risen to the highest level in over three years, while expectations for growth are at a more than two-decade high, according to the latest CBI Industrial Trends Survey.
The survey of 423 firms found that export order books were the highest since December 2013, driven by a broad-based strengthening of which half was accounted for by the pharmaceutical and mechanical engineering sectors. Total order books remained firm in March, after strengthening to a two-year high in February.
Output growth rose at its quickest pace since July 2014 in the three months to March, with manufacturers anticipating that it will accelerate further over the near-term. Meanwhile, firms’ expectations for selling price inflation remain elevated for the quarter ahead.
Anna Leach, CBI Head of Economic Intelligence, said: “It’s been a strong month for UK manufacturers, with production growing robustly and overseas demand on the up.
“The past fall in the pound seems finally to be helping lift demand for UK manufactured exports, which rose at one of the fastest paces in this survey’s history. And manufacturers are positive about the quarter ahead, expecting output to grow at the fastest rate since February 1995.
“But the flipside is that cost pressures are widespread, and manufacturers expect factory-gate prices to continue to rise strongly over the next three months. And this will also put pressure on prices generally.
“Innovation continues to be a fundamental driver of UK competitiveness and productivity gains and will influence the success of UK companies over the longer term. That’s why we want a commitment from the Government to spend 3% of GDP on R&D by 2025 – a joint target to be met by the private and public sector.”
Asian shares followed other markets overnight by hitting 21-month highs. The FTSE 100 closed at another record, up 4.85 points at 7,429.81.
Oil prices rose on expectations that an OPEC-led production cut to prop up the market could be extended, while strong demand will gradually erode surplus stocks.
Brent crude futures were at $51.86 per barrel this morning, up 24 cents, or 0.5%, from their last close. US West Texas Intermediate crude futures were up 13 cents, or 0.3%, at $48.35 a barrel.
Opec, together with other producers, is cutting output by almost 1.8 million barrels per day, though the effect has so far been limited. Prices have fallen 10% since the start of the year as other producers have filled the gap.