UK inflation falls as Covid-19 hits clothing sales, and oil tumbles again – business live

Amid volatile trading in the oil market, Brent crude is now UP for the day — back around $20 per barrel.

Online fashion group Boohoo has seen a surge in casual clothes and pyjamas as Britons hunker down during the pandemic.

Carol Kane, the joint chief executive of Boohoo, says demand for “athleisure wear” such as hoodies, jogging pants and nightwear has all jumped in recent weeks, making up for a slump in sales of smarter outfits like dresses.

Boohoo is also eyeing up struggling rivals, who might be available cheaply in the current crisis.

The Covid-19 lockdown risks increasing the existing economic divide within the eurozone.

A new report from ING economists Bert Colijn and Carsten Brzeski points out that the impact of the lockdown measures varies across Europe.

They’ve analysed Google’s COVID-19 Community Mobility Reports, which show how visits to groceries, shops and workplaces have fallen this year. They show that Italy and Spain have seen the biggest impact, followed by Frnace, while the Netherlands and Germany have seen less disruption.

So with some countries easing the lockdown measures, while others remain locked down for longer, the risk of an “asymmetric recovery” has increased.

They explain:

Covid-19 is often labelled as a symmetric shock hitting the eurozone economy. While this is correct regarding the nature of the shock, differences in the length and depth of the lockdown measures seem to have a rather asymmetric impact on the eurozone economy. Currently, a pattern seems to be emerging that the eurozone countries which experienced the sharpest impact on public (and economic) life will be the last countries exiting the lockdown measures.

Add to this significant differences across countries regarding the size of the fiscal reaction and there is a clear risk of an asymmetric recovery in the eurozone.

With oil at its lowest levels this century, analysts are warning that prices will keep sliding unless there are significant output cuts soon.

Rystad Energy’s head of oil markets, Bjornar Tonhaugen says:

“Be prepared for more surprises in this broken oil market.”

The astonishing plunge in US crude prices on Monday night, to -$40 per barrel, shows the perils of excess supply. But the major producers haven’t yet responded with fresh cuts.

Yesterday, Donald Trump pledged support for the US energy sector, where hundreds of thousands of jobs are at risk.

But that would mean shale producers keep pumping – despite the economics being against them.

Andreas Steno Larsen of Nordea Markets tweets that this is helping to push oil down.

European stock markets are all up this morning, despite the oil price slump.

Rachel Winter, associate investment director at Killik & Co, says the rally follows a Financial Times report that suggests the peak for UK Covid-19 deaths was April 8th.

“The FTSE is up just under 1% this morning following comments from professors at both Oxford and Cambridge universities suggesting that the UK may have passed its coronavirus peak. The market is up despite further falls in oil prices, with Brent crude now below $18 per barrel – that’s a big fall from 2014 when it was over $100 per barrel.

“UK inflation numbers came out this morning showing that prices have fallen since last month. The fall was largely blamed on a heavy discounting in the clothing market given the lack of demand while everyone stays at home. Clothing retailers are really suffering right now – Primark for example, has said it has basically sold nothing because it doesn’t operate online and its stores are all closed.”

Posh tonic maker Fevertree appears to be coping well with the coronavirus pandemic.

Shares in Fevertree have jumped 13% this morning after it reported “strong” demand from customers in shops and supermarkets (the ‘off-trade’) in recent weeks.

It says:

With regards to trading, while the On-Trade sector is facing an extremely challenging period, we have seen strong sales in the Off-Trade in many of our markets both from the initial buying ahead of lockdown but also in recent weeks as at home consumption has remained robust.

Fevertree also reported a 10% rise in revenues in 2019, although profits after tax fell 5%. It also reported tougher competition in the UK, where rivals have also moved into the high-end mixers market.

Today’s inflation report shows that air fares rose by 5.3% during March (based on flights departing on March 17).

By that stage, the Covid-19 pandemic was already hitting the sector – Donald Trump announced his ban on European Union flights to the US on March 12, and added the UK on the 14th.

Many people have seen flights and holidays cancelled since – and are struggling to get refunds.

Our transport correspondent Gwyn Topham explains:

All of the UK’s biggest airlines and most big holiday companies are systematically breaking the law by denying timely refunds to customers for travel cancelled during the pandemic, researchers have found.

Consumer groups have warned that the sector risks permanently losing public confidence in booking travel, with Which? finding 20 of the UK’s largest operators are illegally withholding refunds that should be paid within 14 days.

Although stock markets are up this morning, oil is still sharply down.

Brent crude is changing hands for $17.62 per barrel right now, down 9% today, having hit 21-year lows overnight.

That’s a drop of almost 40% this week, and 70% this year, as traders price in the risk of a deep global recession which leaves oil producers struggling to store crude.

Neil Wilson of Markets.com says crude prices are a good measure of the economic mess we’re in.

I’d say oil markets are telling us how bad things are right now, while equity markets tell us how good or bad investors hope/fear things will be next year.

The new governor of the Bank of England has warned against lifting the UK’s Covid-19 restrictions too early.

Andrew Bailey has told the Daily Mail that the economic damage would be even worse if the lockdown were lifted, only to be re-imposed because coronavirus cases spiked again.

Bailey, who replaced Mark Carney last month, argues:

I think we have to be careful when thinking about human psychology

If we had a lifting and then [lockdown] came back again, I think that would damage people’s confidence very severely.

‘If we have a false start… that would have potentially quite difficult effects I think.’

Bailey also points out that firms need to consider the safety of their staff — both in the workplace, and travelling there.

After falling around 3% yesterday, European stock markets have risen slightly at the start of trading.

The FTSE 100 has gained 38 points, or 0.7%, to 5678 points.

Irish building supplies firm CRH are the top riser, up 4.5%, after it announced a cost-cutting programme this morning and predicted it would benefit from government stimulus plans.

But oil companies are under pressure again. BP has dropped 1%, following the 15% plunge in Brent crude this morning to a 21-year low.

The drop in inflation in March is just the start. Several economists are predicting that the cost of living will keep easing – as people remain confined at home.

Equals Group chief economist Jeremy Thomson-Cook says there simply won’t be enough demand to drive prices up.

“UK inflation stayed steady at 1.5% in March but the wider picture around prices shows that we will not be talking about high inflation for some time. A recession like the UK is currently enduring – we will wait on the data to confirm – naturally will see lower inflation through the destruction of a demand side to the economy whilst movements in oil markets of late show just what can happen to prices when demand dries up.

You cannot have inflation without demand and if we are correct that demand rebounds slower than it fell – a Nike tick-shaped rebound – then the impulse into inflation should be low although a weak pound does remain a risk.”

Simon French of Panmure Gordon predicts that the CPI could fall below 1% soon — well below the official target of 2% per year.

But he also points out that ‘lived inflation’ is higher than the official reading. In other words, if you’re only buying food and drink and barely leaving the house, then cheaper petrol and clothes prices aren’t much help.

Andrew Wishart of Capital Economics suspects inflation could be as low as 0.5% this summer, adding:

We suspect a larger fall in CPI inflation, from 1.5% to 0.9% is in store for April as Ofgem lowers the cap on utility bills to reflect past falls in wholesale energy price.

Laura Suter, personal finance analyst at investment platform AJ Bell, says the plunge in oil prices this month will drag inflation down too.

“Even before the recent capitulation, the price of oil was on the slide in March and this dragged inflation down slightly from February’s 1.7% to 1.5%. Oil prices have a massive impact on the UK’s inflation rate and with prices at the pump and home energy costs getting cheaper we’d expect this trend to continue for the next couple of months.

“What’s more, with retailers having to shut their doors we’re seeing more and more offer discounts to shoppers to move their buying online. In particular clothing and department stores have been hit, as people don’t need new outfits to sit on their sofa all day and are delaying large purchases amid worries about where the economy is headed. One area of slight upward pressure was from alcohol and tobacco, partly because we’re drinking at home more and partly because tobacco duty increased in March following the Budget.

Alcohol and tobacco prices rose in March — partly because the duty on tobacco was raised in Rishi Sunak’s budget last month.

Petrol prices fell by 5.1 pence per litre between February and March 2020, the inflation report shows.

The ONS explains:

Global prices for crude oil have fallen sharply in response to reduced global demand during the COVID-19 pandemic and the failure of the Organization of the Petroleum Exporting Countries (OPEC+) to agree to cut supply in early March 2020.

Consumer demand for motor fuels has likely also reduced in light of measures taken to curb the spread of COVID-19, including increased working from home and broader travel restrictions.

The cost of a “wide range of women’s, men’s and children’s clothing items” fell in March, pulling inflation down.

The ONS suspects people began shunning the shops to avoid catching coronavirus – or because they were focused on stockpiling essential items instead.

Sales patterns this year are likely to have been influenced by the coronavirus (COVID-19) pandemic. Although prices were collected around 17 March, before the formal government lockdown was introduced on 23 March, consumer behaviours and retailers’ expectations of that behaviour might have changed as a result of social distancing and other precautions.

A number of factors might have contributed to the change, including less browsing in physical stores, people spending more time at home where they might have been less interested in clothing, and a shift in spending patterns towards other necessities such as food and cleaning products.

Some early news: Inflation across the UK fell in March, as the government’s Covid-19 lockdown hit demand for some goods.

Consumer prices rose by 1.5% per year last month, the Office for National Statistics reports. That’s down from 1.7% in February, and the lowest since December.

Cheaper clothing and duel pushed inflation down, the ONS says:

• Falls in the price of motor fuels and clothing resulted in the largest downward contributions to the change in the CPIH 12-month inflation rate between February and March 2020.
• Rises in air fares produced the largest, partially offsetting, upward contribution to change.

More to follow….

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The oil price is continuing to slide today, as producers run out of place to store crude as demand plummets.

Brent crude, sourced from the North Sea, has plunged to its lowest level since 1999 this morning — touching just $15.98 per barrel. It began 2020 at $60 per barrel, but has been badly hit by the Covid-19 recession and supplier’’s tardiness in responding.

Weak oil prices are normally good for consumers – pushing down firms’ transport costs and making driving cheaper. But in the current lockdown, many people can’t take advantage.

US crude prices are also sliding again too. A barrel of US oil for delivery in June now costs just $10.88 per barrel — more than halving this week! After May’s contract fell below zero this week, could US producers end up giving away oil in June too?

Overnight, some oil-producers held a virtual conference call — but there was no new agreement to start cutting supplies.

Jim Reid of Deutsche Bank explains:

In a joint closing statement the ministers said that they should “continue holding such consultations”, but it remains unclear if any country has the ability or the inclination to cut further than what is expected to come on May 1.

According to Reuters, Saudi Arabia, Kuwait, and the United Arab Emirates weren’t even on the call — suggesting a split at the heart of Opec….

The agenda

• 3pm BST: Eurozone consumer confidence survey for April: expected to fall to -20, from -11 in April.
• 3.30pm BST: US weekly oil inventory figures