Money blog: Inflation will rise in announcement tomorrow, economists say (2024)

Economists believe inflation rose above target once again last month, as we await the release of official figures tomorrow.

Those polled by Reuters think the headline figure for July will rise from 2% in June to 2.3% - the first increase since December.

It is thought the fading impact of lower energy prices will contribute to the upward movement.

Though the closely watched services inflation figure is expected to have fallen, it could still remain above 5% due to air fares, package holidays, hotel prices and wage growth (see our 7.22am post for more on this).

Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, said: "The CPI reading for July is expected to show that headline inflation has veered away from target again, with further rises expected before the end of the year.

"It seems clear that the fight against insidious inflation has not yet been won."

What does this mean for interest rates?

If inflation has risen, it will illustrate the dilemma facing the Bank of England in deciding how quickly to cut interest rates.

The Bank has elevated the base rate to restrict spending and keep inflation at bay.

Ms Streeter said high wage growth remained a "lingering concern" for Bank rate setters.

"The belt to constrain growth is likely to stay in place in September, because some policymakers are still worried about the potential for wage growth to bulge again," she said.

"They're concerned that if it's not held back, it could prompt inflation to run away again if firms pass on higher wage costs to prices charged to customers."

After a first cut to 5% in August, the Bank suggested rates would not fall as quickly as they rose from the beginning of 2022 until August last year.

Markets are currently pricing in a base rate hold in September, followed by consecutive cuts in November and December.

That would leave the base rate at 4.5% at the end of the year.

"The resurgence in headline inflation in the second half of the year will create a challenging backdrop for the BOE," said Dan Hanson, chief UK economist at Bloomberg Economics.

"While the rise can be easily explained by base effects associated with energy prices, the optics of easing policy when inflation is on the rise aren't favourable."

The pound has risen against the dollar this week, partly because traders have shifted their bets slightly on how long it will be before there's another interest rate cut.

By Sarah Taaffe-Maguire, business reporter

A new survey has suggested that fixing your energy tariff could save you just £5 a year - far less than savings in years gone by.

It had been the case that a typical customer could gain roughly £60 to £80 a year by setting bills for a 12-month period, according to research firm Cornwall Insight.

But cheaper deals have left the market amid forecasts of an October increase to the energy regulator's price cap, which places a maximum charge per unit of electricity.

Fixed tariffs have struggled to offer a cheaper alternative since the beginning of the energy price crisis at the outbreak of the Russia-Ukraine war.

Before Russia's invasion, customers could "consistently expect three-figure savings" if they switched to a fixed rate, Cornwall said.

While there had been hopes that the benefits of fixed tariffs could return, "optimism may have been premature", analyst at Cornwall Insight, James Mabey, added.

"Earlier this year, there were glimpses of savings in the hundreds of pounds, but fixed tariffs have since crept back up to around the same annual cost as the price cap," he said.

Basically, GDP is a tool used to assess the size and health of an economy.

It stands for gross domestic product and measures the monetary value of final goods and services produced in the country over a given period.

Generally, if GDP is growing, and inflation is in check, it's a strong sign that the economy is doing well, with more jobs and better wages available, and people spending more money.

If it's falling, it signals the economy is doing badly, often bringing with it lower incomes and job cuts.

Governments, businesses and economists monitor GDP growth among other indicators to understand where the economy stands - and where it's headed.

How is it measured?

GDP can be measured in three ways:

• Output - the value of goods and services produced by all sectors of the economy - construction, retail, manufacturing etc;
• Expenditure - money invested by businesses and spending by households and the government;
• Income - the total value of income generated by the production of goods and services in terms of company profits and employee benefits.
  

Output is the most often cited of the three, as it is the measure with the best information available to the Office for National Statistics (ONS).

The ONS, the UK's largest statistics authority, publishes GDP figures every month (we'll get quarter figures this Thursday) - one of only a small number of countries to do so. However, the monthly data is more volatile, meaning the quarterly figures, which cover three-month periods, are seen as more important.

What does GDP not include?

GDP is an important tool - but it's not perfect.

The International Monetary Fund (IMF) cautions there are some things that GDP does not reveal, such as the overall standard of living or wellbeing of the country.

It points out that the quality of life can depend on how wealth is distributed among residents, and not just the overall level. Higher output may also come at the expense of leisure time or the running down of non-renewables, it notes.

GDP also excludes any unpaid work, such as childcare or looking after elderly relatives.

One of the best measures of living standards is GDP per capita - which reflects economic growth per head of the population. This also takes into account the affects of migration.

What's happening with GDP now - and how does it affect me?

According to the latest ONS figures, the UK economy returned to growth in May after flatlining in April. As we said above, new data is due on Thursday.

GDP is estimated to have grown 0.4% month-on-month - double the pace economists predicted.

Labour has committed to having the fastest economic growth in the G7 during their time in office.

But the IMF forecasts suggest the UK will fall far short of this both this year and next, with 0.7% growth this year considerably smaller than the 2.6% expected in the US, and next year's 1.5% smaller than Canada's projected 2.4%.

No growth can lead to recession

If GDP falls for successive three-month periods (quarters), the UK is in a technical recession.

During a recession, there's less money circulating: less money for workers from their employers, less money being spent in shops and restaurants, and less money going to the government in tax from wages to pay for things like benefits and public services.

You can learn more about this in our explainer here...

Read other entries in our Basically series...

Thousands of Monzo users have reported the banking app is down.

Tracking monitor Downdetector said more than 2,000 reports of the app not working had been lodged so far.

More than nine million people use Monzo.

Users have been met with this message when opening the app...

Some have complained on social media.

One said: "Any idea how long before you are back online gotta pay rent and unable to and even your phone lines are down."

Another said: "Just transferred money to my account and have not received it yet."

Sky News has reached out to Monzo for comment, but has not received a reply.

However, Monzo replied to one user, saying they were aware of the issue...

Not content with being named the UK's top on-the-go breakfast destination this year (ahead of McDonald's), Greggs is now targeting the evening meal market - with pizza potentially the main attraction.

CEO Roisin Currie said the bakery chain's evening sales were "growing faster" than any other time of day.

"We are very focused on evening trading at the moment because we believe this is a really profitable part of the business long term," she told The Grocer.

Ms Currie said the company could offer a "breadth of range" to customers - including hot and cold sandwiches, pizza, bakes and salads.

"Pizza is very important for us when competing with the food-to-go market as a whole," she said.

Up to 160 new sites, set up for evening trading, could be opened each year as part of the plans, The Grocer reports. The stores would be opened near train stations, airports and popular commuter routes.

"If a [Greggs] was open and busy at 7am, the shop would open at 6.30am," said Ms Currie. "The same way, if a shop is still busy at 7pm and there is trade around that shop, we will stretch their hours to 7.30pm."

A slight easing in wage growth "will be welcomed" by the Bank of England and could clear a path for more rate cuts later this year, an economist has said.

Ruth Gregory, deputy chief UK economist at Capital Economics, said the latest data drop from the ONS indicates that "labour market conditions are continuing to cool".

However, she warned that despite figures also showing a decline in the unemployment rate, it's unlikely today's release "will move the needle too much for the Bank of England".

"We still think the Bank will pause in September before pressing ahead with two more 25 point rate cuts in November and December," she said.

"But much will depend on a broader range of indicators of price pressures, including inflation. July's inflation figures will be released tomorrow."

Market forecasts were fairly unchanged this morning - pricing in a 35% chance of a base rate cut in September.

BySarah Taaffe-Maguire, business reporter

The effect of conflict around the world can be seen in the cost of oil and gas on the markets and soon will be evident in household bills.

As Ukrainian soldiers continue their invasion into Russia, and in an unverified video appear to have taken control of a Russian gas facility key for exporting through Europe, the price of gas edged to 95.74p a therm (the measurement for heat) on Tuesday morning.

It's down from the 100p a therm high seen on Monday evening but still at an eight-month high.

More expensive gas will mean higher electricity bills.

The oil price rose to a high of $81.88 last seen in late July. A rise in the benchmark oil price, as measured by a barrel of Brent crude, will make things like filling a petrol or diesel tank more expensive.

In better news for consumers, and specifically holidaymakers, sterling is at a week high against both the dollar and euro with £1 equal to €1.1708 and $1.2797 respectively.

Yesterday we reported on four straight weeks of losses for the currency.

The Financial Times Stock Exchange (FTSE) 100 index of the most valuable companies on the London Stock Exchange rose a slight 0.05%, while the larger and more UK-based FTSE 250 index was up 0.14%.

Grocery inflation has risen for the first time since March 2023, according to closely watched industry data.

Prices in food shops rose by 1.8% in the four weeks to 4 August, research by Kantar Worldpanel found.

It follows 17 consecutive months ofeasing inflationin the sector, including during the previous month when the rate dropped to 1.6%.

Vitamins, supplements, drinks and chocolate were among the goods that went up fastest in price.

The research, based on the purchasing habits of 30,000 UK households, also found a surge in spending on drinks and snacks during theEuros football tournamentand theOlympic Games.

Read the full story here...

Wages were 5.4% higher in the second quarter of 2024 than a year ago, the Office forNational Statistics has said.

The weekly earnings figures - which the Bank of England is keeping a close eye on in deciding where interest rates should go - exclude bonuses.

The fall from 5.8% was in line with economists' expectations.

The figure remains well above inflation, a concern for the Bank's Monetary Policy Committee, which wants to see evidence the battle with high inflation is over before loosening monetary policy.

Interest rates are kept high to discourage spending and encourage saving - when this happens, price rises tend to slow.

Employers expect lower headline inflation to reducepressure to raise wages over the coming year.

The CharteredInstitute of Personnel and Development said yesterday that employersexpect to raise pay by 3% - the lowest expectation in twoyears.

However, a BoE survey pointed to pay rises of 4.1%.

Last month, new Labour Chancellor Rachel Reeves approved pay rises of at least 5% for millions ofpublic sector workers, including a 22% rise for junior doctorsover two years to resolve a long-running industrial dispute.

Unemployment lower than expected

Meanwhile, the percentage of people who are out of work and looking for a job dropped to 4.2% in July.

Those polled by news agency Reuters expected a rise to 4.5%, up from the 4.4%recorded a month ago.

A low unemploymentrate can indicate a healthy economy and - relating back to where we started this post - increase pressure for wages to rise.

Angry Waitrose customers have aired their complaints online after the supermarket shrunk the size of its own label toilet rolls.

The upmarket grocer has made changes to its Essentials loo roll in order to lower the price - including adding an "embossed texture".

The number of sheets has also been reduced from 240 to 190.

A flood of disgruntled customers have aired their views on social media and the Waitrose website.

One user documented the "disappointing" size change, while another said they wished they hadn't "wasted hard-earned money on a 16 pack", adding that they felt "ripped off".

In a one-star review on the Waitrose website, one person said they had bought the toilet roll "for years" but would not purchase it again.

"Very thin. Disintegrates. Smaller rolls smaller sheets. Very poor quality. Waitrose what on earth are you doing."

Another customer said: "Essential Waitrose bathroom tissue has always been my go-to product, surpassing competitors by a mile. What has happened, what have you done to this once incredible product?"

Waitrose said its changes were aimed at providing better value for money, with the price reduced in recent months. A four-pack of the bathroom essential now costs £2, down from £2.50 in May.

A Waitrose spokesperson said:"We recently embossed ourrollsto give an improved texture, while also cutting the price to reflect the reduction in sheet count. We always welcome feedback and are already reviewing this with our team to see how we can make improvements.

"We are committed to delivering excellent customer service and are proud to have just been named the best supermarket in the UK. We sincerely apologise if our partner's approach didn't reflect this standard and we're certain it wasn't their intention."

The company also said the size of their own-label loo roll was in line with other brands.

Here's a look at how own-brand four-pack toilet rolls at other major retailers compare:

• Tesco - Luxury Soft Toilet Tissue - £1.45 - 220 sheets
• Sainsbury's - Super Softer Classic Toilet Tissue - £1.90 - 190 sheets
• M&S - Quilted Rolls - £2.50 - 170 sheets
• Ocado - Aloe Vera Toilet Tissue - £1.65 - 160 sheets