Rate of inflation eases slightly to 6.7% despite oil prices surging
The rate of inflation has eased slightly to 6.7% confounding the predictions of economists that it would rise.
The Office for National Statistics (ONS) said the consumer prices index (CPI) measure slowed in the 12 months to August, from the 6.8% figure reported the previous month, thanks to food rising at a weaker pace during the month compared to August 2022.
The pace of price growth in the economy, which has eased from a peak of 11.1% just under a year ago, was placed under the greatest pressure by surging global oil costs – being felt across the economy but most visibly at fuel forecourts.
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Economists, along with the Bank of England, had predicted inflation would tick upwards to 7.1%.
At 6.7%, inflation is running at its weakest pace since February 2022.
A key factor behind the decline was food and non-alcoholic drink prices rising at a slower annual rate of 13.6% in August compared to 14.9% in July.
Motor fuel costs rose by 0.2% between July and August 2023, compared with a fall of 1.2% between the same two months last year, the ONS said.
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By my reckoning this is the biggest undershoot for inflation versus expectations we’ve seen since the beginning of the cost of living crisis.
For months, inflation came in higher than expected. Now it’s come in lower than expected.
At this point you could be forgiven for asking: what’s the point of economists’ predictions when they always get it wrong? And you would have a point. But at the very least the extent and direction in which they get it wrong gives us a sense of the momentum behind inflation.
Put it all together and this represents what economists would call a “dovish” moment. It implies, all else equal, that central bankers might be less inclined to raise interest rates.
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Core inflation, which is closely watched by the Bank as it strips out volatile elements such as food and energy costs, had been expected to be largely unchanged.
However, the ONS reported a steep decline in the core inflation measure from 6.9% to 6.2%.
The shift will be seen as reason for optimism by the Bank’s rate-setters that its 14 consecutive interest rate hikes to date, to cool demand in the economy, are having an effect.
Ahead of the inflation data, the vast majority of economists and financial markets had expected a final hike of 0.25 percentage points to be imposed by the Bank on Thursday.
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The rosier picture for inflation now casts greater doubt on whether an increase is guaranteed, giving some hope to hard-pressed borrowers including mortgage holders who have seen their payments mount during the cost of living crisis to date.
Data provider Refinitiv suggested market participants now saw almost an even chance of Bank rate being kept on hold.
Reduced rate hike expectations were also evident as the pound lost ground against both the dollar and the euro.
ONS chief economist Grant Fitzner said of the latest data: “The rate of inflation eased slightly this month driven by falls in the often-erratic cost of overnight accommodation and air fares, as well as food prices rising by less than the same time last year.
“This was partially offset by an increase in the price of petrol and diesel compared with a steep decline at this time last year, following record prices seen in July 2022.
“Core inflation has slowed this month by more than the headline rate, driven by lower services prices.”
The British-born newspaper-owner whose takeover of The Daily Telegraph appears to have been thwarted by a £500m deal with RedBird Capital Partners has called on the title’s stakeholders to rally behind his bid instead.
In an opinion piece to be published later on Friday, Dovid Efune, publisher of The New York Sun, will say that his offer is “now within sight of the finish line, with the bulk of the needed funding committed”.
Mr Efune has been assembling a bid for the right-leaning newspapers for months, with a series of funding options having been explored.
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He now has backing from Nadhim Zahawi, the former Conservative Cabinet minister whose interest in the Telegraph was revealed last year by Sky News, and Jeremy Hosking, a prominent and wealthy City investor.
In his opinion piece, Mr Efune described the Telegraph as a “crown jewel”, adding that British journalism was the envy of the world.
“It is no coincidence that a meaningful portion of America’s largest newsrooms are run by British journalists,” he wrote in a piece shared exclusively with Sky News.
“These include the Wall Street Journal, the Washington Post and CNN.
“You might say that journalists, editors and journalism writ large are among Britain’s greatest exports.”
Referring to the Barclay family, which owned the Telegraph for about two decades, Mr Efune said the newspapers had “functioned as something of a piggy bank for its previous owners, and as a useful form of real estate collateral”.
“The Telegraph’s achievements and advancements despite these handicaps are impressive. But it deserves better,” he wrote.
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Mr Efune said the £500m RedBird takeover – which is likely to involve minority ownership stakes for Abu Dhabi state-backed IMI and Lord Rothermere, the Daily Mail proprietor – had “significant hurdles to overcome”.
“Since The Telegraph first came on the market I’ve dedicated much time and resources to finding a solution,” he said.
“Some details of these efforts have become public. Much has not.
“In particular, I’ve sought to recruit the best-suited investor group to step into the fray.
“That means fully aligned partners, committed to the work of unlocking The Telegraph’s significant potential.”
He described the process as “a turbulent undertaking” which had “faced unwelcome interference along the way”.
“Our group is unique in that, firstly, it is distinctly British, with, as of this moment, the leadership and vast majority of funders being British citizens.
“I, for one, was born in Manchester and raised in Brighton.
“My family owes a great debt of gratitude to this country.
“My grandmother was saved by Britain’s grace and welcome at the age of nine, fleeing Nazi Germany on the Kindertransport.”
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Mr Efune said his family had made a significant contribution to the UK, with his grandfather, Peter Kalms, helping to build the electrical goods retailer Dixons into a household name.
“My great uncle Michael was killed as a tail-gunner in a Lancaster Bomber over Germany.
Mr Efune described his backers as “accomplished British patriots who care deeply about The Telegraph’s future”.
“Our acquisition group is also distinctly devoted to journalism,” he wrote.
“We don’t come with a team of financial engineers or restructuring gurus.
“We’re seasoned and committed newspaper builders, and have a detailed and clear vision for The Telegraph’s growth. We will pursue it vigorously.
“This includes specific and in some cases significant improvement strategies on the nuts and bolts of each of the primary revenue pillars of the business.
“In our view, the oft-heard moniker “Torygraph” far undersells this opportunity.
“In its soul, the paper that braved the Blitz and trumpeted the wartime speeches of Churchill bears a far higher calling.
“It is independent, pugnacious, meticulous, unapologetic and free.
“It is the journalistic bulwark of Western civilisation and a living reminder of Britain’s great gifts to humanity.
Mr Efune added that in a world characterised by turbulent geopolitics, “the need for The Telegraph’s elevation couldn’t be greater”.
“Many beacons of the Western press have dimmed, and we are all poorer as a result.
“The Telegraph’s time is now. Its horizons are endless.
“We’re confident our British group represents the best custodianship of this national treasure by some distance.”
Households on the energy price cap will see a 7% reduction in their average annual payments from 1 July, the industry regulator has announced while urging households to seek out the “better deals out there”.
The default cap – which is reviewed every three months – will see a typical household using gas and electricity and paying by Direct Debit stump up an average annual £1,720, Ofgem said.
That is down from the current April-June figure of £1,849 and reflects a reduction in wholesale gas prices.
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The lower cap, however, will be £152 higher than the same three-month period last year.
It does not affect the millions of households to have taken a time-limited fixed deal.
Nevertheless, it represents some relief for families grappling with the cost of living aftershock that saw many essential bills rise by well above the rate of inflation last month.
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Ofgem also confirmed further bill savings through a £19 average cut, from July, in standing charges for households paying by both direct debit and prepayment, following an operating cost and debt allowances review.
The price cap does not limit total bills because householders still pay for the amount of energy they consume.
The watchdog’s announcements were made just days after fresh forecasts suggested that bills linked to the cap could come down further from both October and January, given recent wholesale market price trends.
Industry data specialist Cornwall Insight estimated on Friday that the price cap was currently on course to rise only slightly in October – by less than £1 a month.
Wholesale gas costs last winter had been relatively stable until a cold snap hit much of Europe in January and early February, driving up demand at a time of weaker stocks.
Other risk factors ahead include extended EU gas storage rules and global conflicts, not least the continuing Russia-Ukraine war that sparked the 2022 energy price spike and cost of living crisis in the first place.
Tim Jarvis, director general of markets at Ofgem, said: “A fall in the price cap will be welcome news for consumers, and reflects a reduction in the international price of wholesale gas. However, we’re acutely aware that prices remain high, and some continue to struggle with the cost of energy.
“The first thing I want to remind people is that you don’t have to pay the price cap – there are better deals out there, so it’s important to shop around, and talk to your existing supplier about the best deal they can offer you. And changing your payment method to direct debit or smart pay as you go can save you up to £136.”
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Ofgem said that a minority of homes, 35%, were on a fixed rate deal.
Price comparison sites lined up after the price cap announcement to urge households still on the default tariff to investigate a switch.
Tom Lyon, director at Compare the Market said: “If anyone is worried about potentially higher energy bills later this year, they could consider locking in a fixed rate deal now.
“Fixed rate deals also protect you from price hikes if the oil and gas markets are volatile. Beyond your energy bills, it’s important to search and compare other household bills, such as your car insurance, credit cards, or broadband, to see if you can make savings.”
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