Bank of England ‘must create recession’ to fight high inflation; mortgage rates rise again – business live | Business

UK exporters have been hit by falling exports this month, but price pressures appear to be easing too.

The Confederation of British Industry (CBI)‘s monthly healthcheck of UK factories has found that order books recoveedred last month. However, the export order balance fell again to -29 from -26, the weakest since February 2021.

And on inflation….UK manufacturers expect to raise prices by the smallest amount since February 2021 over the next three months.

The CBI’s monthly index of manufacturers’ average selling price expectations slowed to +19 in June from +21 in May, its lowest in more than two years but well above its long-run average of +7.

CBI deputy chief economist Anna Leach said:

“Total order books have improved a touch in recent months, but they remain fairly soft. And although output expectations have turned positive again, growth is expected to be quite weak in the three months to September.”

Rising interest rates, and rising prices, are both hurting the budgets of low-income families.

New research from the Joseph Rowntree Foundation this morning show that the numbers of low-income households going without essentials or in arrears has not improved for over a year.

JRF senior economist Rachelle Earwaker warns that 5.5 million low-income households have had to cut down on or skip meals because they can’t afford food. Four million reported going hungry, and 2.7 million have reported having a poor diet because of the cost of living crisis.

Earwaker adds:

Low-income households are struggling to afford their bills, with 4.5 million in arrears, and 2.6 million holding high cost credit loans with loan sharks, doorstep lenders, payday lenders or pawnshops.

The JRF are calling for the Government to implement an Essentials Guarantee, to ensure that the basic rate of Universal Credit will at least always covers life’s essentials.

UK inflation surprised to the upside today, for the fourth month in a row, reports Berenberg Economics.

They have now lifted their forecasts for UK interest rates – predicting Bank Rate will have risen to 5.25% (was 5.0%) at the end of 2023 and 4.0% (was 3.5%) one year later.

Berenberg warns that UK inflation is changing its nature, and becoming more domestically driven, saying:

By and large, imported inflation caused by last year’s spike in energy and food prices is receding on trend as energy prices correct and the 2022 surge in these prices washes out of the yoy comparison. The yoy rate for goods prices eased to 9.7% from 10.0% despite higher prices for used cars.

However, the more domestically driven increase of services prices advanced from 6.9% to 7.4%. Many services are labour intensive and thus affected by strong wage gains. As reported last week, the rise in weekly average earnings (ex-bonus) accelerated to 7.5% in April from 7.1% in March.

Helped by resilient gains in employment (1.2% yoy in April), most households continue to open their wallets despite the gradually building headwind from higher mortgage rates.

Resolution Foundation’s chief executive, Torsten Bell, points out that there are winners from higher interest rates:

But he’s not impressed by claims that Liz Truss and Kwasi Kwarteng are somehow vindicated over last year’s mini-budget debacle:

Sticky inflation is extending the cost-of-living crisis for everyone in Britain, and hardening the mortgage crunch for the seven million households who have a mortgage.

That’s the warning from the Resolution Foundation today.

James Smith, Resolution’s research director,

“The latest data will reinforce market expectations of how high interest rates will go, and put more pressure on the Bank. This is bad news for anyone with a mortgage, who will be looking out for more positive signals before their current deal comes to an end.”

Resolution have calculated that mortgage repayments are set to rise by £15.8bn a year by 2026, meaning an average hit of £2,900 for households remortgaging.

Three-quarters of that £15.8bn hit will fall on the richest 40% of households, they add, as higher-income households are more likely to have a mortgage.

But rising prices hit poorer households more.

They add:

Inflation rates for the poorest tenth of households are 25 per cent higher than those for the richest tenth of households as they spend more of their income on food and energy bills.

Ben Franklin, research director at the Centre for Progressive Policy says the UK’s high food price inflation, and stubbornly high core inflation, are ‘particularly devastating’ news.

Although food price inflation slowed last month, to 18.3% per year from 19%, there were still some sharp increases in the prices of staples compared with last year.

The annual rate of inflation fell for eggs, potatoes, meat, bread, butter and coffee, for example:

• Eggs: April 37.0%, May 28.8%

• Low-fat milk: April 33.5%, May 28.5%

• Yogurt: April 24.0%, May 23.4%

• Potatoes: April 24.8%, May 22.4%

• Fruit and vegetable juices: April 21.1%, May 18.0%

• Ready meals: April 20.8%, May 16.8%

• Meat: April 17.2%, May 16.3%

• Bread: April 18.6%, May 15.3%

• Margarine and other vegetable fats: April 19.0%, May 15.2%

• Tea: April 19.1%, May 14.6%

• Butter: April 20.1%, May 14.1%

• Chocolate: April 14.9%, May 11.7%

• Pizza and quiche: April 11.9%, May 9.4%

• Coffee: April 15.3%, May 9.2%

But shoppers were hit by rising inflation on other products:

• Sugar: April 47.4%, May 49.8%

• Olive oil: April 46.4%, May 46.9%

• Sauces, condiments, salt, spices and culinary herbs: April 33.9%, May 35.1%

• Cheese and curd: April 30.6%, May 33.4%

• Pasta and couscous: April 27.7%, May 28.5%

• Jams, marmalades and honey: April 17.9%, May 22.9%

• Crisps: April 14.5%, May 17.8%

• Fish: April 14.2%, May 16.6%

• Rice: April 14.9%, May 16.1%

• Breakfast cereals and other cereal products: April 8.1%, May 12.3%

• Fruit: April 10.8%, May 11.2%

• Dried fruit and nuts: April 7.2%, May 10.3%

Rents climb at fastest rate since at least 2016

House price inflation slowed in April, new official data shows.

The Office for National Statistics reports that average UK house prices increased by 3.5% in the 12 months to April, down from 4.1% in the year to March.

The average UK house price was £286,489 in April, which is £9,000 higher than 12 months ago, but £7,000 below the recent peak in September 2022.

It was slightly higher than the £285,057 recorded in March.

Average house prices increased over the 12 months to £306,000 in England (3.7%), £213,000 in Wales (2.0%), £187,000 in Scotland (2.0%) and £172,000 in Northern Ireland (5.0%).

The North East saw the highest annual percentage change of all English regions in the 12 months to April (5.5%), while London saw the lowest (2.4%).

Hunt economic advisor: Bank of England must create recession to curb inflation.

Here’s a breakdown of the price moves that kept UK inflation disappointingly high in May, at 8.7%:

• Food and non-alcoholic beverages: up by 18.3% over the last year, down from 19% in April

• Alcoholic beverages and tobacco: up by 9.3% over the last year, down from 9.1% in April

• Clothing and footwear: up by 7.1% over the last year, up from 6.8% in April

• Housing, water, electricity, gas and other fuels: up by 12.1% over the last year, down from 12.3% in April

• Furniture, household equipment and maintenance: up by 7.5% over the last year, matching April’s reading

• Health: up by 8.3% over the last year, up from 7% in April

• Transport: up by 1.2% over the last year, down from 1.5% in April

• Communication: up by 9.1% over the last year, up from 7.9% in April

• Recreation and culture: up by 6.7% over the last year, up from 6.3% in April

• Education: up by 3.2% over the last year, matching April’s reading

• Restaurants and hotels: up by 10.3% over the last year, up from 10.2% in April

• Miscellaneous goods and services: up by 6.8% over the last year, matching April’s reading

Buy-to-let mortgages have also become pricier.

Moneyfacts reports:

• The average 2-year buy-to-let residential mortgage rate today is 6.44%. This is up from an average rate of 6.40% on the previous working day.

• The average 5-year buy-to-let residential mortgage rate today is 6.31%. This is up from an average rate of 6.29% on the previous working day.

• There are currently 2,456 buy-to-let mortgage products available. This is down from a total of 2,525 on the previous working day.

Mortgage rates rise again

UK national debt hits 100% of GDP, highest since 1961

Today’s inflation figure of 8.7% is “a shocker”, says Professor Costas Milas of the University of Liverpool’s Management School.

He believes it will prompt the Bank of England (BoE) into raising interest rate by half a percentage point tomorrow, to 5%, telling us:

The BoE predicted, only last month, an inflation rate of 8.22% for the second quarter of 2023.

For this to materialize, inflation needs to increase by 7.3% in June. This huge drop from the current 8.7% rate is almost unlikely to happen.

To defend its credibility, I sense the MPC will most likely feel “obliged” to raise tomorrow it’s base rate by 0.5 percentage points and assess the very effect in August’s Monetary Policy Report (and next decision). There is no interest rate decision in July….