Inflation: The worst is not yet over for consumers – falling inflation is not the same as falling prices

Published

2 years ago

January 18, 2023

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That inflation of 10.5% should be essentially good news speaks volumes for the economic turmoil of the last year.

A second consecutive monthly fall from October’s high of 11.1% suggests price rises may have peaked and the descent towards less corrosive rates, perhaps below 6% by the middle of the year, has begun.

Some of this will be down to economic gravity, as increases that were gathering pace at the turn of last year, and accelerated with the Russian invasion of Ukraine in February, are lapped by this year’s figures.

If inflation has peaked, however, it does not mean the worst is over for consumers; falling inflation is not the same as falling prices. It is only the rate of increase that is slowing.

A fall in diesel and petrol prices, albeit from historic highs, brought the greatest downward pressure on consumer price index (CPI) inflation, with year-on-year inflation to December falling to 6.9% from a June peak of 15.2%.

That is good for drivers at the pump and for the economy more widely, reducing the cost of supplying goods as almost nothing in the UK moves without seeing the back of a lorry.

Falling fuel costs have not been enough to curb food prices, up 16.8% in the run-up to Christmas, a faster rate than in November and the highest since 1977 by Office of National Statistics calculation.

All the primary factors in global inflation – war, energy and post-Covid supply chains – coalesce in food production, pushing up the cost of feed, fuel and fertiliser.

That makes pricier grocery bills inevitable and has a disproportionate impact on the least well-off, for whom food is a greater proportion of spending.

The best argument for higher wages

Many of them will work in the public sector, where high inflation will remain employees’ best argument for higher wage settlements, and the government’s primary justification for denying them.

Immigration minister Robert Jenrick told Sky News on Wednesday that increasing wage offers would “be the very worst thing we could do”, a comment unlikely to ease industrial relations or win approval from economists.

While ministers argue increasing public sector wages will cause a “wage-price spiral”, in which higher pay increases costs that businesses pass on to consumers, thus embedding inflation just as it starts to fall, plenty of economists disagree.

Many argue public sector pay is not inflationary because there is no onward cost to the consumer of a teacher or nurse’s time, but to the taxpayer, with the government able to adjust its spending accordingly. Increasing state employee pay may even deliver economic benefits, with more spending and a greater tax take.

With real-term pay falling 3.8% in November, and even private sector pay settlements of 7.2% on average well short of inflation, there is no sign yet of an upward spiral.

There is one cautionary figure in the latest data, however.

Core services inflation is still rising, up to 6.8%, a sign perhaps that higher private sector wages in a largely domestic market are beginning to stick.

Peaked or not, the Bank of England will not need an excuse to increase interest rates when it meets next month.

Business

Poundland shake-up will see 68 stores and two distribution sites shut

Published

4 hours ago

June 17, 2025

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Poundland shake-up will see 68 stores and two distribution sites shut

The new owner of the discount retailer Poundland has revealed proposals to close 68 stores and two distribution centres under a shake-up that will also see frozen food and online sales halted.

Gordon Brothers, the investment firm which snapped up the struggling brand for a nominal sum last week, said its recovery plan “intended to deliver a financially sustainable operating model for the business after an extended period of under-performance”.

The plans are understood to be leaving 1,350 jobs at risk.

Money latest: £150 compensation for thousands of energy customers

It currently employs 16,000 people across the business.

Poundland said it was also seeking store rent reductions more widely under the plans.

Sky News reported on Monday that if creditors backed the restructuring, with a vote expected in late August, 250 of Poundland’s sites would also see their rent bills reduced to zero.

Poundland said its future focus would be on profitable stores, with its web-based operations becoming confined to browsing only.

As a result of the new priority, along with a shift away from most chilled and all frozen products, the company said it would no longer need its frozen and digital distribution centre at Darton in South Yorkshire.

It was to shut later this year.

Poundland also planned to close its national distribution centre at Bilston in the West Midlands early in 2026.

The retailer said it expects to end up with between 650 and 700 stores after the overhaul – assuming it achieves court approval.

It currently runs around 800 stores across the UK and Ireland but stressed Irish shops, which trade as Dealz, have not been affected.

Poundland’s struggles in recent years have included increased competition, poorly-received stock and rising costs.

Its managing director, Barry Williams, said: “It’s no secret that we have much work to do to get Poundland back on track.

“While Poundland remains a strong brand, serving 20 million-plus shoppers each year, our performance for a significant period has fallen short of our high standards and action is needed to enable the business to return to growth.

“It’s sincerely regrettable that this plan includes the closure of stores and distribution centres, but it’s necessary if we’re to achieve our goal of securing the future of thousands of jobs and hundreds of stores.

“It goes without saying that if our plans are approved, we will do all we can to support colleagues who will be directly affected by the changes.”

Business

US-UK trade deal ‘done’, says Trump as he meets Starmer at G7

Published

5 hours ago

June 17, 2025

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US-UK trade deal 'done', says Trump as he meets Starmer at G7

The UK-US trade deal has been signed and is “done”, US President Donald Trump has said as he met Sir Keir Starmer at the G7 summit.

The US president told reporters: “We signed it, and it’s done. It’s a fair deal for both. It’ll produce a lot of jobs, a lot of income.”

As Mr Trump and his British counterpart exited a mountain lodge in the Canadian Rockies where the summit is being held, the US president held up a physical copy of the trade agreement to show reporters.

Several leaves of paper fell from the binding, and Mr Starmer quickly bent down to pick them up, saying: “A very important document.”

Sir Keir said the document “implements” the deal to cut tariffs on cars and aerospace, adding: “So this is a very good day for both of our countries – a real sign of strength.”

Mr Trump added that the UK was “very well protected” against any future tariffs, saying: “You know why? Because I like them”.

However, he did not say whether levies on British steel exports to the US would be set to 0%, saying “we’re gonna let you have that information in a little while”.

What exactly does trade deal being ‘done’ mean?

The government says the US “has committed” to removing tariffs (taxes on imported goods) on UK aerospace goods, such as engines and aircraft parts, which currently stand at 10%.

That is “expected to come into force by the end of the month”.

Tariffs on car imports will drop from 27.5% to 10%, the government says, which “saves car manufacturers hundreds of millions a year, and protects tens of thousands of jobs”.

The White House says there will be a quota of 100,000 cars eligible for import at that level each year.

But on steel, the story is a little more complicated.

The UK is the only country exempted from the global 50% tariff rate on steel – which means the UK rate remains at the original level of 25%.

That tariff was expected to be lifted entirely, but the government now says it will “continue to go further and make progress towards 0% tariffs on core steel products as agreed”.

The White House says the US will “promptly construct a quota at most-favoured-nation rates for steel and aluminium articles”.

Other key parts of the deal include import and export quotas for beef – and the government is keen to emphasise that “any US imports will need to meet UK food safety standards”.

There is no change to tariffs on pharmaceuticals for the moment, and the government says “work will continue to protect industry from any further tariffs imposed”.

The White House says they “committed to negotiate significantly preferential treatment outcomes”.

Mr Trump also praised Sir Keir as a “great” prime minister, adding: “We’ve been talking about this deal for six years, and he’s done what they haven’t been able to do.”

He added: “We’re very longtime partners and allies and friends and we’ve become friends in a short period of time.

“He’s slightly more liberal than me to put it mildly… but we get along.”

Sir Keir added that “we make it work”.

The US president appeared to mistakenly refer to a “trade agreement with the European Union” at one point as he stood alongside the British prime minister.

Mr Trump announced his “Liberation Day” tariffs on countries in April. At the time, he announced 10% “reciprocal” rates on all UK exports – as well as separately announced 25% levies on cars and steel.

In a joint televised phone call in May, Sir Keir and Mr Trump announced the UK and US had agreed on a trade deal – but added the details were being finalised.

Ahead of the G7 summit, the prime minister said he would meet Mr Trump for “one-on-one” talks, and added the agreement “really matters for the vital sectors that are safeguarded under our deal, and we’ve got to implement that”.

Business

Poundland to stop paying rent at hundreds of stores in rescue deal

Published

21 hours ago

June 16, 2025

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Poundland to stop paying rent at hundreds of stores in rescue deal

Poundland will halt rent payments at hundreds of its shops if a restructuring of the ailing discount retailer is approved by creditors later this summer.

Sky News has learnt that Poundland’s new owner, the investment firm Gordon Brothers, is proposing to halt all rent payments at so-called Category C shops across the country.

According to a letter sent to creditors in the last few days, roughly 250 shops have been classed as Category C sites, with rent payments “reduced to nil”.

Poundland will have the right to terminate leases with 30 days’ notice at roughly 70 of these loss-making stores – classed as C2 – after the restructuring plan is approved, and with 60 days’ notice at about 180 more C2 sites.

The plan also raises the prospect of landlords activating break clauses in their contracts at the earliest possible opportunity if they can secure alternative retail tenants.

In addition to the zero-rent proposal, hundreds of Poundland’s stores would see rent payments reduced by between 15% and 75% if the restructuring plan is approved.

The document leaves open the question of how many shops will ultimately close under its new owners.

A convening hearing has been scheduled for next month, while a sanction hearing, at which creditors will vote on the plan, is due to occur on or around August 26, according to one source.

The discounter was sold last week for a nominal sum to Gordon Brothers, the former owner of Laura Ashley, amid mounting losses suffered by its Warsaw-listed owner, Pepco Group.

Poundland declined to comment.