UK inflation tumbles to 0.8% amid Covid-19 discounting and cheaper energy – business live

My colleague Zoe Wood explains how M&S’s sales have deteriorated under the lockdown:

In the six weeks to 9 May, clothing and home sales dropped 75%, while sales in Marks & Spencer’s food halls, excluding its restaurants, were down 4.6%.

The company said even though its website had continued to operate, demand for clothing in the initial weeks was very low, although it had begun to improve. Over the last three weeks online sales were 20% higher than last year.

Just in: UK house prices picked up in March, just before the pandemic forced the housing market to freeze.

The ONS says:

• UK average house prices increased by 2.1% over the year to March 2020, up from 2.0% in February 2020.
• Average house prices increased over the year in England to £248,000 (2.2%), Wales to £162,000 (1.1%), Scotland to £152,000 (1.5%) and Northern Ireland to £141,000 (3.8%).
• London’s average house prices increased by 4.7% over the year to March 2020; this is the largest 12-month growth London has seen since December 2016.

Here are more details of Marks & Spencer’s plan to ride out the pandemic, via the BBC’s Emma Simpson.

Looking ahead… Tom Stevenson, investment director at Fidelity Personal Investing, warns that inflation could spike once the pandemic is over

He points out that the huge stimulus measures launched by central banks and governments could ultimately push up the cost of living:

“The drop in inflation to its lowest level since 2016 reflects a fall in petrol costs as well as the impact of lower end demand on factory gate prices.

“In the short term, disinflationary pressures will mount as the economy slows under lockdown, consumers become more cautious and companies start to prepare for life beyond furlough support by reducing their workforces. Further out, there is a growing fear that monetary and fiscal policy choices could lead to higher inflation, perhaps significantly so.

“Investors have started to prepare for a more inflationary environment by adding to their holdings of gold, the traditional hedge against rising prices. The precious metal is trading close to a seven-year high.”

But in the short-term, the trend is clearly downward:

High street chain Marks & Spencer has outlined how the lockdown will hurt its business – and it’s an alarming picture.

Under M&S’s Covid-19 scenario, the current government guidelines continue for a period of at least four months – resulting in a 70% drop in clothing and home sales in April-July, and a 20% drop in food sales (compared to previous forecasts).

M&S has already been hit by the pandemic, telling shareholders:

The Covid-19 crisis started to have an impact on the business in the first week of March with reductions in UK Clothing & Home sales which declined by 6.2% and 26.9% the week after.

With the onset of lockdown, the effect on sales, colleagues and customers in both businesses has been dramatic. Clothing sales at the low point dropped to 16% of their level a year ago

The firm also reported that costs and stock write downs for Covid-19 have cost £212.8m. This helped to push pre-tax profits down by a fifth in the last financial year, to £67.2m from £84.2m.

Retailers are expected to slash prices in the months ahead, to shift the huge stockpiles of unsold clothes which they’ve not been able to sell. That would continue the drop in clothing prices seen in April’s inflation report, keeping the cost of living lower.

British justice secretary Robert Buckland says the government will try to hep Rolls-Royce and its staff.

Asked about the firm’s plan to axe 9,000 job cuts, Buckland replied:

“Clearly we will have to go to work with the employer to look at the options.

“All of us will be looking not just at Rolls Royce but at the whole sector and the implications of this for the supply chains as well, let’s not forget them, to make sure we are doing everything we can in terms of plans and action to support what is a very high skilled part of our economy.”

(thanks to Reuters for the quotes)

Grim news: The Covid-19 pandemic is forcing Rolls-Royce to slash 9,000 jobs – or nearly a fifth of its workforce.

Rolls-Royce, one of the jewels in UK manufacturing’s crown, is wielding the axe after seeing slumping demand for its jet engines due to the pandemic. With airlines suspending flights and mothballing planes, the Derby-based firm faces a serious crisis.

Warren East, the chief executive, told the City:

“This is not a crisis of our making. But it is the crisis that we face and we must deal with it.

Our airline customers and airframe partners are having to adapt and so must we.

“Being told that there is no longer a job for you is a terrible prospect and it is especially hard when all of us take so much pride in working for Rolls-Royce.

“But we must take difficult decisions to see our business through these unprecedented times.”

Here’s the full story:

Britain’s economy has a lot of problems right now, but inflation doesn’t appear to be one of them.

With CPI almost halving last month, Equals Group chief economist Jeremy Thomson-Cook says weak economic demand will keep prices low:

With headline consumer inflation at 0.8% and producer price inflation – simply price rises at the beginning of a supply chain – falling 5.1% in April alone courtesy of the recent declines in oil prices, we are more likely to hear concerns about deflation from central bankers.

As we have noted in the past, you need to have demand to create inflation and, for now, there is little demand. Some will return as employees earnings recover and more businesses reopen allowing consumers to spend more on different sectors but, similar to the pace of the economy reopening, is likely to be slow.”

Ruth Gregory of Capital Economics has spotted that this is the biggest drop in inflation in over a decade:

The slump in CPI inflation from 1.5% in March to 0.8% in April (consensus 0.9%; CE 0.8%) was the biggest drop since December 2008 and left inflation at its lowest since August 2016. This was largely due to energy effects, as fuel inflation slipped from -2.4% to -12.2% and utility inflation dropped from 3.9% to -6.8% (due to the decline in Ofgem’s price cap).

There was a partial offset from food price inflation, which rose from 1.1% to 1.3%, reflecting higher inflation for fresh fruit, meat and fish. The games, toys, hobbies and computer software categories provided also provided further upward pressure.

The slump in inflation will intensify speculation that the Bank of England could cut interest rates below zero (their currently 0.1%, a record low), says Chris Bailey, European Strategist at wealth managers Raymond James:

“Talk of negative interest rates has been doing the rounds in recent weeks, but with inflation now trailing expectation, falling from 1.5% to 0.8%, that debate has become very real.

All eyes now turn to the Governor of the Bank of England’s comments later today for signs of further action to boost economic activity. The Bank of England does have room to move, if it wishes, and Governor Bailey has already laid out the red carpet for lower interest rates, so we can be sure it’s at the front of his mind.

Did your lockdown takeaway feel a little pricier this month? If so, you’re not alone.

Prices at fast food outlets and takeaway services rose last month, the Office for National Statistics reports.

The largest monthly price increases came from takeway and delivery pizzas (up 7.3%) and takeaway burgers (up 4.6%).

Although food prices fell slightly, vegetable became pricier – possibly due to a switch to British potatoes.

The inflation report explains:

Food prices overall fell by 0.1% between March and April this year….

The largest upward contribution came from vegetables (including potatoes and tubers), where prices rose between March and April this year but fell between the same two months a year ago. This month’s price movements for vegetables could be a consequence of switching from internationally to domestically grown produce.

Sky’s Scott Beasley points out that this partly eroded the benefits from cheaper oil.

The slump in the oil price has also driven down producer price inflation (basically, how much companies charge for their goods charge) to -0.7%.

That means goods at the factory gate are actually cheaper than a year ago, suggesting consumer price inflation will remain low in the coming months.

The ONS says:

• The price for materials and fuels used in the manufacturing process displayed negative growth of 9.8% on the year to April 2020, down from negative growth of 3.1% in March 2020.
• Petroleum products made the largest downward contribution to the change in the annual rate of output inflation.
• Crude oil provided the largest downward contribution to the annual rate of input inflation.

Although overall inflation fell, the cost of games rose in April — as families scrambled to find interesting things to during the lockdown.

The ONS explains:

There was an upward contribution (of 0.11 percentage points) from games, toys and hobbies where prices for items like computer games consoles, preschool activity toys, craft kits, dolls, construction toys, and sit and ride toys overall rose by 0.5% in the month compared with a fall of 5.8% a year ago.

There were further upward contributions of 0.07 percentage points from data processing equipment, principally computer software, and 0.05 percentage points from recording media, including CDs and DVDs purchased online and music downloads.

Stock shortages drove up wool prices rose last month — perhaps due to isolating Brits taking up knitting?

The ONS says:

For other clothing and accessories, most of the upward movement came from balls of knitting wool, where there were recoveries from sales and higher price comparable items as a result of stock shortages in some stores.

Petrol prices hit their lowest level in four years, today’s inflation report shows:

Petrol prices fell by 10.4 pence per litre between March and April 2020, to stand at 109.0 pence per litre, and diesel prices fell by 7.8 pence per litre, to stand at 116.0 pence per litre.

In comparison, between March and April 2019, petrol and diesel prices increased by 3.8 and 2.3 pence per litre to stand at 124.1 and 133.0 pence per litre, respectively. Petrol prices were last lower in May 2016 (when a litre cost 108.7 pence), and the 10.4 pence per litre drop in petrol prices is the largest monthly fall since the current ultra-low sulphur or unleaded petrol series began in 1990.

Good news for drivers! But there is a proviso. With millions of employees working from home, and non-essential driving curbed, few will have actually benefited much from cheaper fuel prices.

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

Britain’s inflation rate has fallen to its lowest rate in over three and a half years last month, due to a drop in energy prices and discounting by shops desperate to sell stock during the Covid-19 lockdown.

The Consumer Price Index plunged to just 0.8% year-on-year in April, the Office for National Statistics reports, down from 1.5% per year in March.

That’s its lowest rate since August 2016.

In April alone, prices fell by 0.2%, bringing some relief to struggling households and firms.

Cheaper energy bills and petrol prices has a downward impact on the cost of living.

That’s due to falling crude prices as the coronavirus outbreak hits demand, and the cap on UK energy bills. Gas prices, for example, fell by 3.5%.

The ONS says:

• Falling energy and fuel pump prices resulted in the largest downward contributions to the change in the inflation rate between March and April 2020.
• Rising prices for recreational goods resulted in a partially offsetting upward contribution to change.

Discounting was also a factor — with clothes prices dropping last month during the lockdown:

The ONS explains:

For garments, prices overall fell by 2.3% between March and April 2020 compared with a small increase of 0.4% a year ago. There were a greater number of items recorded as being discounted this year, when compared with April 2019, with reductions across a range of women’s and men’s clothing items.

The larger number of items recorded as being on sale could reflect retailers’ efforts to encourage online purchases or potential difficulties as a result of the current economic situation.

More to follow….

Also coming up today

Inflation data from the eurozone and Canada are expected to also show a sharp slowdown last month.

David Madden of CMC Markets has the details:

Eurozone CPI for April is anticipated to fall from 0.7% in March to 0.4% in April. The core update is anticipated to be 0.9%, and that would be a fall from the 1% registered in March. The figures will be announced at 10am (UK time).

Canadian CPI will be released at 1.30pm (UK time). The report is expected to be -0.1% and that would be a huge drop from the 0.9% posted in March.

UK high street chain Marks & Spencer is reporting results, updating the City on its performance during the lockdown. And there could be queues at your local McDonalds outlets, as the fast food chain reopens around 40 outlets across the county.

The agenda

• 10am BST: Eurozone inflation data for April
• 1.30pm BST: Canadian inflation data
• 2.30pm BST: Bank of England governor Andrew Bailey and colleagues testify to parliament’s Treasury committee