Good news for the UK economy as inflation and house price growth both fall

Today the UK economic data flow coincides with the news story of the week which is the oil price. After yesterday’s press conference from the Saudi oil minister things are now much calmer. From

He added that this interruption represents about half of the Kingdom’s production of crude oil, equivalent to about 6% of global production. However, he stated that over the past two days, “the damage has been contained and more than half of the production which was disrupted as a result of this blatant sabotage has been recovered.”

The Kingdom’s production capacity will return to 11 million barrels per day by the end of September, he said, and to 12 million barrels per day by the end of November. Production of dry gas, ethane and gas liquids will gradually return to pre-aggression levels by the end of this month.

A lot of this seemed targeted at the Aramco IPO but the price of a barrel of Brent Crude Oil has fallen back to US $64.50. So the inflation impact has been considerably reduced since Sunday night. I did warn that things got overheated on Monday.

 It then fell back to more like US $68 quite quickly. For those unaware this is a familiar pattern in such circumstances as some will have lost so much money they have to close their position and everybody knows that. It is a cruel and harsh world….

On the other side of the coin a welcome rebound in the value of the UK Pound £. It is only a little more than a fortnight after so many reports of its demise were written when it went below US $1.20 for a while whereas it is just below US $1.25 as I type this. That gave us another reminder to always be very nervous about crowded trades. Of course the picture ahead is unclear and may well be volatile although it was yet another bad move by Bank of England Governor Mark Carney to say this. From MorningStar.

Bank of England Governor Mark Carney says that sterling’s recent volatility means it is behaving more like an emerging market currency than one of a leading global economy.

Sometimes his ego makes his forget his responsibilities. Returning to our inflation theme should the stronger level for the UK Pound versus the US Dollar be maintained it will help with inflation prospects due to the way so many commodities are priced in dollars.

Today’s Data

The Trend

This turned out to be quite welcome as the lower value for the UK Pound £ was more than offset by the lower price for crude oil ( this was August).

The growth rate of prices for materials and fuels used in the manufacturing process was negative 0.8% on the year to August 2019, down from 0.9% in July 2019.

If you want the exact impact here they are and they give a clue as to how volatile the impact of the crude oil price can be.

The largest downward contribution to the annual rate in August 2019 came from crude oil, which contributed 2.09 percentage points  and had negative annual price growth of 11.6% . This compares to an annual price growth of 41% this time last year.

So there is a downwards push for later in the year and a nearer impact is also downwards for the level of inflation.

The headline rate of output inflation for goods leaving the factory gate was 1.6% on the year to August 2019, down from 1.9% in July 2019.

In the welcome news was something that David Bowie might have described as a Space Oddity.

Transport equipment provided the largest upward contribution of 0.32 percentage points to the annual rate , with price growth of 2.8% on the year to August 2019 . This is the highest the annual rate has been within this industry since September 2017 and is driven by motor vehicles, trailers and semi-trailers.

The only thing I can think of is that I believe there was a change in the subsidy for some types of electric vehicles.

Consumer Inflation

The news here was welcome too.

The Consumer Prices Index (CPI) 12-month rate was 1.7% in August 2019, down from 2.1% in July 2019.

This has a range of beneficial impacts because if we look at the wages data for the month of July it showed annual growth of 4.2% meaning real wages rose by 2.5% using this measure.

The good news has some flies in the ointment however. The first is that an inflation measure which ignores owner-occupied housing is therefore not that appropriate as a wages deflator. Also two areas which have been troubled drove the inflation fall.

Recreation and culture, where within the group, the largest effect (of 0.09 percentage points) came from games, toys and hobbies (particularly computer games including
downloads), with prices overall falling by 5.0% between July and August 2019 compared with a smaller fall of 0.1% between the same two months a year ago.

Regular readers will be aware that our statisticians have problems dealing with games which get discounted and if we look at fashion clothing there is the same problem. Ahem.

Clothing and footwear, where prices rose by 1.8% this year compared with a larger rise of 3.1% a year ago. The main effect came from clothing, particularly children’s clothing. Prices of clothing and footwear usually rise between July and August as autumn ranges start to enter the shops following the summer sales season. The rise was smaller this year and may have been influenced by the proportion of items on sale, which fell by less between July and August this year than between the same two months a year ago.

Apologies for the raft of technical detail but these are important points. Not only for themselves but the latter came up in the debate over the RPI as there were arguments it made up around 0.3% of the gap ( presently 0.9%), But in a shameful act the UK Statistics Authority decided to use the three wise monkeys as its role model going forwards. No doubt the research is finding its way to the recycling bin.

If we switch to the RPI we see a sign that will send a chill down the spine of our official statisticians and statistics authority.

games, toys and hobbies

Are one of the reasons it fell by less and thus there is a hint it may be dealing with the issues here in a better fashion.

The all items RPI annual rate is 2.6%, down from 2.8% last month.

As you can see it only fell by half the amount.

House Prices

There was some really good news here.

Average house prices in the UK increased by 0.7% in the year to July 2019, down from 1.4% in June 2019. This is the lowest annual rate since September 2012, when it was 0.4%.

I have long argued that UK house prices have become unaffordable and we see that in the year to July they fell by 3.5% relative to wage growth. More of this please as it is the best way of deflating the bubble. As ever this conceals regional differences which opened with a surprise.

The lowest annual growth was in the North East, where prices fell by 2.9% over the year to July 2019. This was followed by the South East, where prices fell by 2.0% over the year…….House price growth in Wales increased by 4.2% in the year to July 2019, down slightly from 4.3% in June 2019, with the average house price at £165,000.

With LSL Acadata reporting earlier this week that annual house price growth in the year to August was 0% we seem to be coming out of the house price boom phase in terms of increases if not price levels.


Pretty much all of the trends here are welcome as we see lower consumer, producer price and house price inflation. As I have already pointed out this boosts real wages and let me add that over time I expect that to boost economic output and GDP. Although of course there are plenty of other factors in play in the latter. As to the detail it looks as though the monthly fall may have been exacerbated by the problems with the measurement of inflation in items which have a fashion component. Let me give you an example of this which is that we spotted a pair of Nike running shoes which retail at £209.95 at Battersea Park Running Track yet my friend managed to get the previous model for £28 at a sale outlet. Put that in the inflation numbers….

This leads more egg on the face of the UK inflation establishment as it would appear that in the latest data the RPI handled such matters in a superior fashion. Also let me just remind you that whilst the fantasy imputed rent driven CPIH looks more on the ball because of the decline in house price growth this is a fluke along the lines of the fact that even a stopped watch is right twice a day.


22 thoughts on “Good news for the UK economy as inflation and house price growth both fall

  1. Hello Shaun,

    re : ” inflation and house price growth both fall…”

    Mark carney is ” happy”

    here’s the live report from the BoE



    • Hi Forbin

      Very good 🙂 I suspect the Bank of England barman had to mix an extra strong Martini this afternoon. Not too strong though as he had to vote for unchanged UK interest-rates later. One of his “improvements” which means they voted before the US Federal Reserve decision which is rather daft.

  2. Great article as always Shaun.

    As someone who buys a fair few games it would be interesting to hear how they work out the price. imho games have become very expensive on launch. But who buys them at launch? I generally wait until they’re discounted at 75% before purchase, and save full price purchases for smaller studios who I care about.

    I follow the housing market in my area (south manchester), and I think its reached its limit now. 3 bed semi’s sell very quickly, but the price has crept up. The market above has stalled. To get a ‘better house’ (more bedrooms or detached), you’re looking at 400k – 600k which is astronomical. I think the ‘ladder’ is broken and people cannot afford the 150k – 250k to trade up.They tend to stay on the market and then disappear without selling, although some are starting to have 10% reductions. Despite the oft claimed reason being brexit, I think people cannot afford to trade up.

    Lots of extensions going up as people cannot afford to move.


    • Despite the oft claimed reason being brexit, I think people cannot afford to trade up.

      but it will be blamed.

      here in sunny surrey – 10% drops ore more

      some houses are just not budging – lack of buyers it appears

      footfall is poor – the estate agents are nervous …..



    • I live in the same general area, (Cheadle Hulme) and recently my (English) wife has stated that she wants to sell up and move to SW Scotland. I was SHOCKED at the value of our 2-bed semi. £200,000 or 4 times what we paid for it 19 years ago. This is not sustainable, regardless of Govt. intervention.

  3. It’s not just that computer games are discounted, it’s that the big names behind them are experimenting with different pricing strategies. There are less of the standard £40-£60 releases, and more of the ‘free’ downloads (think Fortnite) supplemented by pocket-money extras where people end up spending lots more, but in smaller chunks over time. I don’t think the standard inflation measuring processes are built to deal with those sorts of changes.

  4. Excellent blog Shaun
    A lot of positive figures but as we all agree property
    prices need to fall a lot in the future.
    All bodes well for the important September results I think.

    • Hi Midge and thank you

      Yes they do but at least we are doing this the right way with better wages growth and very little to no house price inflation. The only weakness is that it will take time to right what has gone wrong.

  5. Buttt….(data guy unanswered question)…If you bought 5 per cent down (buy to let??) near the plateau, and realistically selling prices have dropped in many places 10 per cent; (and your short term mortgage is up for renewal and property assessment)… If you are squeezable for the money – what will/can they do?!? (I don’t know English property law -in Canada (except Alberta)- dem banks bee pirates!) What effect might forced sales (blt sandwich) have on market?!?

    • after the debacle of past housing slumps many banks will not accept you just handing the keys back

      extensions or interest only are offered , this has worked in the past

      and will work now but ….. lets face it if it gets that bad HMG and BoE will be ” inventive” will monetary policy 😉


  6. Well !

    There is a wide percentage margin between 1.5% core CPI and 2.6% RPI take your pick and lets face it everyone has their own inflation based on their own personnel circumstances.

    However to deal with the hard data CPI is still under the BOE target of 2% and still falling!

    So how can they still be saying they want to see a rate increase I am lost for words. Lets face it inflation is falling all around the globe and regardless of the £ effect that is what is going on and if the £ rises inflation doesn’t seem to be a concern.

    The BOE has said its ruled out negative interest rates, well despite what they say if world growth continues to slow and global inflation continues to fall they may have to reconsider what the do under those circumstances.

    As for it being good news for workers they have been given a boost the last few years with the minimum wage but lets face it there were many people on benefits who would have done far better on benefits rather than working. What some don’t understand is when a person is on benefits they don’t have to pay council tax and that is a saving on its own.

    Now don’t get me wrong I am not having a go on the poorer class, I am just putting some more flesh on the bones, what one reads doesn’t always bear out in real life, if the general public was doing very well on wages then why is it John Lewis has had three weeks of falling sales? John Lewis sales fell 6.1% last week and 5.5% the week before

    Joe blogs the ordinary man or woman on the street is now spending more and more of their money online and in ALDI and LIDL who are both thriving, and its a good job both are expanding if the two German retailers were not around the general public would be far worse off toady with their finances as the big four wouldn’t be a bit concerned and kept their prices up and expected Joe Blogs to turn their heat down and drive less cars.

    • 1, re:

      “The BOE has said its ruled out negative interest rates, well despite what they say if world growth continues to slow and global inflation continues to fall they may have to reconsider what the do under those circumstances.”

      needs some creative thinking – so how about dumping CPI in favor of the RPI ….

      hmm, bennies would go up – so that’s win-win – more money in Joe public’s purse


    • 2, yah peter, as I have pointed out before – what chance of a Consumer economy if no one have any money left after basic?

      leads to dis-inflation – the BoE bogey man

      so expect some ” inventive” policies !

      Stimulus cheques anyone ?


      Ps: let’s fear Panic , one of lesser know horses of the Apocalypse , Panic will cause all sorts of blunders…

      • forbin

        The world is running out of ideas but you and I both know that and deflation could be on the cards for a number of reasons.

        1-Joe public is running out of money this is borne out by unaffordable house prices and shop prices not making headway.

        2-Consumer credit is still rising what would happen if the tap was turned off?

        3-pressure is on world wide to think more about sustainability and that will have an effect in slowing down consumerism, the less we consume the less inflation affect but I await to see if Shaun will input on that one?

        The governments don’t want deflation neither hyper inflation that is why they set an inflation target of 2% but economics is too complex and its not that easy making a setting and adhering to it there are too many variables.

        I recall having a conversation with a psychologist some time ago on suicide rates and he told me they cannot be predicted there are too many variables and that is the same with world economics. The variables are simply too complex in different economies, we saw that recently with the Saudi oil strike if it had have been much worse and gone on much longer the world higher oil prices would have caused a ripple effect.

        ;Like it or not not the world economy is slowing down and I for one do not rule out deflation and negative rates in the UK as is happening in other countries.

      • Hi Forbin,
        If anyone thinks the insane government and central bank policies of the last ten years are over let them take a deep breath and think again.

        We are about to enter a world of madness no sane person could have predicted in their wildest nightmares, the following may never happen but given the current festering corrupt political process it is in my opinion all too likely to transpire.

        The governments(with the aid and complicity of their central banks will literally be giving money away to their electorates in one form or another. The housing market is of course central to economic policy in the the UK and must be maintained at all costs, therefore expect government handouts to first time buyers in the form of lump sum payments to ensure the market never crashes, when that fails to work, there will be the next iteration, something along the lines of “shared ownership” where the £1 million one bedroom shithole flat being unaffordable to the first time buyer is offered the chance to buy with a government loan, the government taking the majority stake in return for taxable payments, this gives the opportunity for governments to target those “most in need” – i.e. those that fit their political demographic and thus can be used to influence voters intentions when election time comes, add in the next stage of government control such as is already implemented in China via “social credits”(say something nasty about the government or immigrants or anything un-pc and sorry you are no longer eligible for that flat or you now have 28 days to vacate the premises).Add in unlimited government debt since with negative rates (courtesy of the central bank) you can pay back less than you borrow and since it never has to be repaid and can be rolled over in perpetuity there is no limit to the amount that can be borrowed!

        Communism? Yep 100%, but it will be called errr… – we can’t call it that, it will frighten the sheeple, how about…………..”Modern Monetary Theory”….brilliant!!!

  7. Boss ‘CaT”s view on the Brexit housing scenario:

    But maybe the way,
    Is really to blame,
    So I’ll remove the cause,
    But NOT the symptom!!

    Lyrics from song-. “Rocky Horror Picture Show”

    • Hi Canuckistinian

      It certainly has been a horror show in much of the UK. Not everywhere as prices in Northern Ireland took quite a dive and whilst they have risen they still have not got anywhere near the previous highs of around £225k.

      “Northern Ireland house prices increased by 3.5% over the year to Quarter 2 (April to June) 2019. Northern Ireland remains the cheapest UK country to purchase a property in, with the average house price at £137,000 “

    • Hi Forbin

      I have pretty much already replied to this earlier to you. But don’t forget there is the Bank of Japan to come on Friday as well and the Swiss tomorrow so Carney’s head may be spinning like the girl in The Exorcist.

  8. Great blog as usual, Shaun.
    It seems you were quite right in thinking the media hype given to a spike in cauliflower prices was a false alarm. There was only a 4.0% monthly increase in the RPI price for cauliflowers in August. (See Table 55 of the consumer price inflation detailed reference tables.) In fact, the fresh vegetable item, or seasonal food item tout court, that showed the strongest increase was iceberg lettuce, at 9.7%. This was the biggest August monthly price increase in iceberg lettuce prices since 2003 (22.0%).
    There is such a deluge of price information today it is difficult to keep up with it. Today also saw the update of the quarterly measures of owner-occupied housing costs to 2019Q2. If the UK does crash out of the EU these indices would likely be on life-support, since the official position of the ONS is they only calculate a net acquisitions series to comply with Eurostat requirements. The only ONS published series for stamp duty is a component of the OOH(Payments) index. It showed an annual increase of 0.8% in 2019Q2, down from 1.0% in 2019Q1. If stamp duty were incorporated in the RPI/RPIJ, it would still reduce the RPIJ annual inflation rate, as has been the case from 2017Q2 forward.

    • Hi Andrew and thank you

      You made me take a deeper look and they should have chosen onions! They fell this month but were previously on a bit of a tear. If we were discussing India this would be a big deal. Also you reminded me of China so I have just tweeted this.

      “For those of you wondering if the pork crisis in China is affecting the UK then I can answer for August. Pork loin & sausages are the same price as last year and bacon is cheaper but gammon is up ~8% and ham is up 12%”

      You are right that we get too many measures on these so-called theme days. That is of course part of the Bureaucratic plan and mind.

      As for a proper inflation measure well don’t give up

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