Today has opened with a reminder of both a major economic issue of 2017 for the UK and the theme that the UK is an inflation nation. From the BBC.
British Gas will increase electricity prices by 12.5% from 15 September, its owner Centrica has said, in a move that will affect 3.1 million customers.
However, the company’s gas prices will be held at their current level.
The average annual dual-fuel bill for a typical household on a standard tariff will rise by £76 to £1,120, up by 7.3%.
Unless you live in an all electric property it is the last number I guess which is the most relevant. However the reason is not what you might think according to Centrica.
Centrica chief executive Iain Conn told the BBC’s Today programme that wholesale costs had gone down and were not the reason for the price rise.
“We have seen our wholesale costs fall by about £36 on the typical bill since the beginning of 2014 and that is not the driver”
A fascinating viewpoint and he rammed home what were the real causes.
It is transmission and distribution of electricity to the home and government policy costs that are driving our price increase
We are back to the UK being an inflation nation theme as whilst out political class regularly promise energy cost price caps and the like they then sign us all up to policies often but not always green based which will cost us all more money as time passes. The headline feature in this regard was the promise of £92.50 per megawatt hour to EDF for electricity from the proposed Hinkley Point nuclear power station or around double current prices.
Perhaps that is why the Bank of England targets an inflation rate of 2% per annum and claims that is sound money as in fact there is a steady drip feed away from us. These days the impact of even such a rate of inflation is larger due to the weak level of wage rises.
The good news on this front has been the rally in the UK Pound £ versus the US Dollar which passed US $1.32 yesterday. Of course the US Dollar is weak overall but the price we pay for commodities will be helped by this. Less hopeful has been the rise in the price of a barrel of Brent Crude Oil has risen above US $52 per barrel. Some other commodity prices have been rising too as the Reserve Bank of Australia reported earlier.
Using spot prices for the bulk commodities, the index increased by 7.4 per cent in July in SDR terms and remains 21.9 per cent higher over the past year.
These things are of course very volatile with The Australian reporting this earlier.
According to Platts’ The Steel Index, benchmark 62 per cent iron ore at Chinese ports rose $US4.10, or 6 per cent, to $US73.10 last night, the highest since early April and up from lows of $US53 hit in mid June.
So there are inflationary pressures around for the rest of this year.
This was released yesterday by the UK Office for Statistics Regulation ( OSR ).
On behalf of the Board of the Statistics Authority, I am pleased to confirm the re-designation of CPIH as a National Statistic.
I gave evidence to the OSR suggesting that they should not do so. In my opinion they have not demonstrated that they can estimate imputed rents and prices accurately. The situation below is apparently just fine.
I acknowledge the efforts by ONS staff to provide reassurance around the quality of the Valuation Office Agency (VOA) private rents microdata, which are currently unavailable to ONS…………. ONS’s lack of assurance over these data in 2014 played a significant role in our decision to remove National Statistics status.
How can you reassure about data you do not know? Anyway the result was no surprise however the ONS ( Office for National Statistics) will be damaged but what has been a tin eared propaganda campaign in favour of CPIH and I fear the OSR has shown that it looks and sounds good but in reality simply rubber stamps the establishment viewpoint. Even past fans and supporters of CPIH such as the economics editor of the Financial Time Chris Giles seem to lack any real enthusiasm for it.
We got an estimate of what has been going on with Nationwide customers today.
The annual pace of house price growth remained broadly stable in July at 2.9%, only a touch lower than the 3.1% recorded in June.
There is an irony here as the effort to exclude house price rises from the inflation data applies just as it is pretty much the same as the official inflation measure. Also the market is looking rather becalmed.
Survey data point to relatively sluggish levels of new buyer enquiries, but at the same time surveyors report that relatively few properties are coming onto the market
The news this morning was good on this front.
The rate of improvement in UK manufacturing operating conditions accelerated for the first time in three months at the start of the third quarter.
A factor in this was very welcome.
foreign demand rose at the second-strongest rate in the series history, beaten only by that recorded in April 2010. Companies reported improved inflows of new work from clients in North America, Europe, the AsiaPacific region and the Middle-East.
Are we finally seeing that bit of economic theory called the J-Curve applying after the fall in the value of the UK Pound? Perhaps we got that as well as a benefit from the recent higher Pound.
Cost pressures eased in July
This would be rare for the UK as movements in the currency invariably seem bad! Just to be clear these are movements over different periods of time where prices respond more quickly than business. Also there was a further improvement in the UK employment situation.
The ongoing upturns in output and new orders encouraged further job creation in July. Staffing levels rose for the twelfth straight month. The pace of expansion was among the best registered over the past three years.
Let us briefly bask in the glow of a UK manufacturing renaissance especially if we add in the CBI report of a week or two ago. We have even managed to nudge above the economic boom in France as our PMI ( Purchasing Manager’s Index) reading at 55.1 was slightly above its 54.9. Meanwhile house price growth has notably faded. Much more of this and the “rebalancing” of former Bank of England Governor Mervyn King will be on the menu again or if we add a dose of reality for the first time. Also 0.2 on this measure is simply spurious accuracy. Indeed if you note this piece of research from them the margins are much wider.
In fact, periods of sustained downturns, the extent to which takes the annual rate of growth of manufacturing output into negative territory, have only ever been recorded when the PMI surveys output index has fallen below 52.6 for more than one month.
So is 50 the threshold for growth or 52.6? Also there is the issue that on this measure the UK had manufacturing growth in the second quarter as opposed to this.
The latest ONS data meanwhile estimated that manufacturing output fell 0.5% in the second quarter.
So we are either booming or contracting? That makes the “on the one hand….on the other hand” of economists seem accurate! Here is the conclusion of the Markit analysis.
The relationship between the PMI and ONS data therefore suggest that the current weakness in the ONS data is merely another temporary downturn and that a resumption to growth will be seen in the third quarter, providing PMI data remain above 52.6 in August and September.
Let’s be upbeat and hope for that although the real message here is that all the numbers are unreliable. Indeed as is news from my old employer Deutsche Bank. From the Financial Times.
Landsec, the property company, said on Tuesday it had signed an agreement for Deutsche to take at least 469,000 square feet at 21 Moorfields, a site under construction in the City of London.
Only last week it was supposed to be flooding out of London. No doubt some will go to Frankfurt but how many?