Summary
A quick recap, after a busy morning.
Economists have warned that poorer households are now suffering double-digit inflation, as the cost of living crisis intensified.
UK inflation jumped in April to a 40-year high of 9%, with energy bills soaring after the Ofgem price cap was lifted.
But both Resolution Foundation, and the Institute for Fiscal Studies, highlighted that poorer households have seen the sharpest jump in inflation.
Resolution said the government must act, by uprating key benefits such as Universal Credit, or by a “radical increase in the ambition” of the Warm Homes Discount scheme.
Jack Leslie, senior economist at the Resolution Foundation, says:
“Inflation reached a 40-year high last month off the back of a sharp rise in energy bills and the highest food price inflation in a decade. These recent drivers of inflation mean that lower-income families are facing the most severe cost pressures, with their inflation rate already hitting double digits.
“Inflationary pressures are likely to continue to grow through the year as the effects of higher energy prices continue to work their way through businesses and into consumers’ pockets.
The IFS warned the UK faces a prolonged period during which poorer households are facing rates of inflation even higher than the headline figures would suggest.
NEW: Average inflation reached 9% in the year to April, but the poorest households faced inflation rates of 10.9%.
This is 3 percentage points higher than inflation rates for the richest decile.
[THREAD: 1/4] pic.twitter.com/wnwnuVdnBy
— Institute for Fiscal Studies (@TheIFS) May 18, 2022
IFS director Paul Johnson said the UK was witnessing a return to “swiftly growing inequality”.
Gas prices have almost doubled in the last year, the report showed, while food inflation was a 10-year high of 6.7%, with double-digit increases for pasta, poultry and milk.
Citizens Advice reported that so far in May it has referred more than 750 people a day to food banks.
The rise led to fresh calls for an emergency budget, and warnings from one union of strike action unless wages kept pace with rising prices.
The Institute of Directors warned UK inflation is “shockingly high”, while the CBI said
it is ‘critical’ that the government helps people facing real hardship now in this ‘historic’ squeeze.
UK factories raised their prices by 14% in April, compared to a year ago, which will push up consumer prices in the months ahead.
The price of goods produced by UK factories rose 14.0% in the year to April 2022.
This is up from 11.9% growth in the year to March 2022 https://t.co/kVtcWrajFH
— Office for National Statistics (ONS) (@ONS) May 18, 2022
The pound fell back, on concerns that the UK could slide into recession.
Motorists faced another hit at the pumps, with the price of petrol in the UK hitting a new alltime high.
Shell boss faces investor rebellion over £13.5m pay package
Alex Lawson
The chief executive of Shell is facing an investor revolt over his £13.5m pay packet, as oil and gas firms battle growing calls for a windfall tax on their profits.
The investment adviser Pirc has urged shareholders to vote against Ben van Beurden’s pay packet at next week’s annual general meeting, calling it “excessive”.
The Dutchman picked up £6.3m last year, up from £5.2m a year earlier. The company has given him a 3.5% increase in salary to £1.42m and he has the opportunity to land a further £12.1m in cash and shares by hitting company targets.
Pirc said the chief executive’s salary was in the top 25% of a peer comparator group “which raises concerns over the excessiveness of their pay”.
It also called for “the fallacy of alignment with shareholders to be retired”. Companies typically argue that large share awards incentivise executives to increase the stock price for investors. Here’s the full story, by my colleague Alex Lawson.
Peter Walker
Keir Starmer urged Boris Johnson to “make up his mind” and impose a windfall tax on North Sea energy firms, adding that the prime minister is “choosing to let people struggle” by delaying any further action.
During yet another prime minister’s questions dominated by the cost of living, Starmer used all six of his questions on the single subject. He lambasted Johnson over his refusal to use a windfall tax to reduce energy bills, saying this would inevitably happen, and the “vacillation” was causing significant harm.
“Doesn’t he see that every single day he delays his inevitable U-turn – he’s going to do it – he’s choosing to let people struggle when they don’t need to?” the Labour leader said in the Commons.
The price pressures pushing up UK inflation are unlikely to ease until 2023, predicts Paul Hollingsworth, chief European economist at BNP Paribas Markets 360.
He writes:
- Looking ahead, inflation is likely to remain elevated for much of 2022.
- The contribution from energy will of course depend on the evolution of the next price cap change in October, but we expect another sizeable (30%+) increase.
- At the same time, the increase in food price inflation likely has further to run, on the back of both prior rises in wholesale prices but also additional disruptions created by the Russia-Ukraine conflict.
- Supply disruptions exacerbated by recent lockdowns in China makes a significant easing of core goods price inflation also unlikely in the short term.
That means the cost of living crisis will deepen, hitting real incomes and consumption growth over the next few quarters.
Hollingsworth adds:
That ‘stagflationary feeling’ is likely to persist for some time yet, then, even if we do not envisage a material weakening in the labour market that would be required for a fullblown recession.
In the US, the housing market appears to be cooling as rising interest rates and building costs hit demand.
Housing starts (the number of new building projects which got underway) dipped by 0.2% in April, with March’s reading revised down too.
More notably, the number of permits for future homebuilding dropped 3.2%.
Mortgage rates have been climbing, as the Federal Reserve began the process of raising interest rates to cool US inflation from a 40-year high.
Costlier building materials have also been cited as a factor hitting the market.
April U.S #housing starts fell more than expected as rising construction costs and #mortgage rates price more potential homebuyers out of the market. This puts upward pressure on existing home prices and rents. This problem will get worse as #inflation and interest rates rise.
— Peter Schiff (@PeterSchiff) May 18, 2022
This is a handy chart, showing how the UK’s inflation rate is higher than in most other major economies:
some methodological considerations esp vs US too – but comparison has some indicative value, especially after IMF predicted UK inflation next year at 5.3% highest in the G7, and higher than all EU members, and only exceeded in G20 by crisis-ridden Argentina, Turkey and Russia. pic.twitter.com/L9ecnIb6Ew
— Faisal Islam (@faisalislam) May 18, 2022
The only change is that Canada’s latest inflation report is just out, and it shows inflation inched up to a new 31-year high of 6.8%.
Lloyds Banking Group has announced plans to close a further 28 branches in Britain this year, just two months after axing 60 outlets.
The move have been criticised by employee union Unite, who said the closure of 20 Lloyds branches and 8 Halifax-branded branches between August and November this year was “inexusable”.
Vim Maru, group retail director at Lloyds, in a statement that fewer customers were visiting branches:
“Branch visits have been falling significantly for several years now, and this trend is continuing.
Unite said it would impact 69 full-time roles, while Lloyds said it would aim to support staff impacted and move those who wanted to stay to a new role.
Caren Evans, Unite national officer said:
“The branch closure announcement today that another profit making financial institution is failing to consider the needs of consumers and staff beggars’ belief.
This news is another example of a bank choosing to walk away from the communities who need access to banking.
Inexcusable: the closures of 28 Lloyds branches is failing to consider the needs of consumers and staff.https://t.co/UJTyBaVD7C
— Unite London & Eastern (@UniteLondonEast) May 18, 2022
My composite measure of UK inflation shows annual inflation of 9.3 percent – higher than CPI but not yet in double digits territory, though RPI is already 11.1pc – see chart attached pic.twitter.com/bGCuudRd4X
— Andrew Sentance (@asentance) May 18, 2022
Summary
A quick recap, after a busy morning.
Economists have warned that poorer households are now suffering double-digit inflation, as the cost of living crisis intensified.
UK inflation jumped in April to a 40-year high of 9%, with energy bills soaring after the Ofgem price cap was lifted.
But both Resolution Foundation, and the Institute for Fiscal Studies, highlighted that poorer households have seen the sharpest jump in inflation.
Resolution said the government must act, by uprating key benefits such as Universal Credit, or by a “radical increase in the ambition” of the Warm Homes Discount scheme.
Jack Leslie, senior economist at the Resolution Foundation, says:
“Inflation reached a 40-year high last month off the back of a sharp rise in energy bills and the highest food price inflation in a decade. These recent drivers of inflation mean that lower-income families are facing the most severe cost pressures, with their inflation rate already hitting double digits.
“Inflationary pressures are likely to continue to grow through the year as the effects of higher energy prices continue to work their way through businesses and into consumers’ pockets.
The IFS warned the UK faces a prolonged period during which poorer households are facing rates of inflation even higher than the headline figures would suggest.
NEW: Average inflation reached 9% in the year to April, but the poorest households faced inflation rates of 10.9%.
This is 3 percentage points higher than inflation rates for the richest decile.
[THREAD: 1/4] pic.twitter.com/wnwnuVdnBy
— Institute for Fiscal Studies (@TheIFS) May 18, 2022
IFS director Paul Johnson said the UK was witnessing a return to “swiftly growing inequality”.
Gas prices have almost doubled in the last year, the report showed, while food inflation was a 10-year high of 6.7%, with double-digit increases for pasta, poultry and milk.
Citizens Advice reported that so far in May it has referred more than 750 people a day to food banks.
The rise led to fresh calls for an emergency budget, and warnings from one union of strike action unless wages kept pace with rising prices.
The Institute of Directors warned UK inflation is “shockingly high”, while the CBI said
it is ‘critical’ that the government helps people facing real hardship now in this ‘historic’ squeeze.
UK factories raised their prices by 14% in April, compared to a year ago, which will push up consumer prices in the months ahead.
The price of goods produced by UK factories rose 14.0% in the year to April 2022.
This is up from 11.9% growth in the year to March 2022 https://t.co/kVtcWrajFH
— Office for National Statistics (ONS) (@ONS) May 18, 2022
The pound fell back, on concerns that the UK could slide into recession.
Motorists faced another hit at the pumps, with the price of petrol in the UK hitting a new alltime high.
NIESR, the economic research group, has calculated that underlying inflation (ignoring the highest and lowest 5% of price moves) rose to 5.7% in April from 5.6% in March.
It adds:
Underlying inflation increased in 7 of the 12 UK regions in April. London’s underlying annual inflation rate remained the highest at 6.7 per cent, compared to Wales which had the lowest rate again at 4.6 per cent in April.
NIESR also warns that interest rate rises risk pushing the UK deeper into recession:
Consumers will continue to be battered by the storm of a higher cost of living during a time when real wages are being significantly eroded.
We continue to expect the Bank of England to raise interest rates through 2022, however there are significant risks that the Monetary Policy Committee may deepen the recession NIESR expects at the end of 2022 if rates are hiked rigorously.
Mark Sweney
In other news, Netflix is cutting 150 jobs as the streaming company seeks to reduce its costs after revealing it expects to lose millions of subscribers in the first half of the year.
The widely expected cuts are mostly focused on its US operation, affecting employees in its sprawling film and TV divisions.
This month, Netflix’s market value was slashed by almost $60bn as investors panicked that the decade-long boom in the streaming sector had come to an end, after the company reported its first loss of subscribers in 10 years.
Larry Elliott: Treasury will find some help with rising inflation
Larry Elliott
Chancellor Rishi Sunak will have to produce more help for those worst hit by rising inflation, predicts our economics editor Larry Elliott:
Inflation is likely to fall back a bit in the coming months but the respite will be modest and temporary. There will be further increases in interest rates from the Bank of England as it seeks to prevent inflation becoming embedded in the economy, and renewed calls on Rishi Sunak to increase support for those most affected by rising prices.
In his response to the latest inflation figures, the chancellor sought to deflect criticism of the government over its handling of the cost of living crisis by noting other countries were facing similar pressures.
“We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action,” Sunak said.
But blaming global factors is not going to prevent the calls for action from growing louder and the words “stand ready” are a clear sign that the Treasury will come up with something to help those most affected by rising inflation. The only questions are how generous the support package will be, and when it will arrive.
Here’s his full analysis:
PMQs live: Boris Johnson faces Keir Starmer as inflation soars
The cost of living crisis is dominating the UK political landscape, and likely to feature heavily at Prime Minister’s Questions at noon today.
Andrew Sparrow’s Politics Live blog will be tracking the action, as well as all the political reaction to April’s inflation surge:
It already flags that union leaders have backed Labour in calling for an emergency budget, and that Unite union has said it will use strike action if necessary to protect workers’ pay as inflation rises:
Sharon Graham, its general secretary, warned:
Unite’s answer to the current crisis is that employers who can pay decent wages but won’t will face industrial action. I can tell you that we don’t intend to shift from that.
Pound falls back amid recession worries
Sterling has dropped back towards its lowest level since the start of the pandemic, amid concerns that the UK could drop into recession soon.
After rallying almost two cents yesterday after unemployment hit a 48-year low, the pound has lost almost a cent back to $1.24. Last week it dropped through $1.22, the lowest since March 2020.
Today’s inflation reading, although certainly bleak, wasn’t quite as bad as the 9.1% CPI reading which City expected,. That may mean the Bank of England won’t raise interest rates as fast as thought.
At the same time, price pressures are adding to the strains on the UK economy.
Chris Beauchamp, chief market analyst at IG Group, explains:
Today’s CPI confirms the bind in which the BoE finds itself, and shows Andrew Bailey was right to be so gloomy. The squeeze on consumers is getting worse, and with factory gate prices even higher it will get worse still.
But the BoE knows it will struggle to fight inflation with the economy so vulnerable to higher rates and a potential recession. Hence the weakness in sterling this morning.
Shortages of workers, as well as rising costs of energy and ingredients, drove food and non-alcoholic drinks price inflation to a 10-year high of 6.7%.
So explains Karen Betts, chief executive of the Food and Drink Federation:
“This is a very worrying time for many households, and food and drink businesses are continuing to do everything they can to contain food-price inflation. However, the pressures on both large and small businesses are immense.
Ingredient price rises have been relentless for more than a year now, as a result of pressures in the global supply chain caused by the COVID-19 pandemic. The war in Ukraine, with both Ukraine and Russia important suppliers of commodities like wheat and food oils, as well as energy and fertiliser, has made the situation worse.
Our sector is, in particular, impacted by the significant rises in energy costs seen this year – with over 60% of food and drink manufacturers reporting energy price rises are impacting their operations. Meanwhile, wages are rising too with labour shortages right across our sector taking hold.
Last month, MPs warned that labour shortages largely caused by Brexit will “permanently” push up food prices and cause irreparable damage to British farmers unless the Government stepped in.
The Royal Statistical Society is concerned that the CPI inflation report doesn’t capture the impact of rising costs on low-income households.
It is calling for a new measure of inflation, the “Household Cost Indices” which unlike the CPI is designed to capture the experiences of all households
Stian Westlake, chief executive of the Royal Statistical Society, explains:
“Today’s CPI figures will not be a surprise to anyone as household costs continue to rise. The problem remains that CPI was never designed to capture the actual experiences of households on what they pay out. By looking at overall spend in the economy, it gives greater weight to those on higher incomes.
“As the cost of living crisis continues, with the poorest being most impacted by rising costs, we need a measure of inflation that captures the experiences of all, so the right policy decisions can be made.”
Anti-poverty campaigner Jack Monroe has highlighted this issue too, with her plans for the excellently-titled Vimes Boots Index to track inflation within basic, essential items.
The ONS is working on plans to increase the number of price points used to track inflation dramatically each month from 180,000 to hundreds of millions, using prices from supermarket checkouts.
The UK is experiencing a return to “swiftly growing inequality”, with City workers getting large bonuses and poorest families hit hardest by inflation.
That’s the verdict of Paul Johnson, head of the IFS, who cites this morning’s analysis showing low-income households suffer the highest inflation rate.
Inflation overall is 9%. But our analysis suggests that the poorest are facing an inflation rate or around 11%. That’s because they spend a large fraction of their budget on energy and food. Their benefits of course rose by just 3.1%. https://t.co/b4at9U7C69
— Paul Johnson (@PJTheEconomist) May 18, 2022
Put this together with analysis we published yesterday showing an big increase in earnings inequality, driven by pay rises in banking and financial services, and it looks like we have a return to swiftly growing inequality. (2010s saw income inequality fall if anything) https://t.co/R7KMOZRpe7
— Paul Johnson (@PJTheEconomist) May 18, 2022
In February, British bankers started collecting the biggest bonuses since before the 2008 global financial crisis, after a boom in takeover deals in 2021.
There could be a “couple of bumps to get through” before inflation settles down, a Cabinet minister has warned.
International Trade Secretary Anne-Marie Trevelyan told an event at Bloomberg’s headquarters in London that countries were “facing a global battle against inflation”.
Answering a question about inflation and the cost of living after her speech on green trade, she said (via PA Media):
“This is something we have to tackle across the board.
“And the worry we always have is that inflation tends to have two bumps to it.
“You have the initial one that is caused by this energy spike and immediate global rise but what can follow is the longer term impact and indeed through food production and particularly with disruption to Ukraine.
“So we know that we will probably have a couple of bumps to get through before we will see, we hope, stabilisation and a reduction as the energy crisis settles.”
