Eat Out to Help Out drags inflation to lowest since 2015

Inflation
Eat Out to Help Out put a drag on overall price increases Credit: TOLGA AKMEN/AFP via Getty Images

Annual UK consumer price growth slowed to its lowest level since 2016 as Rishi Sunak’s signature Eat Out to Help Out meal discount scheme cut into public spending costs.

CPI inflation fell to 0.2pc year-on-year, following a 0.4pc fall in prices between July and August. Although the figure was stronger than expected, inflation remains well below the Bank of England’s 2pc target.

Higher costs for video games represented one of the biggest contributors to price growth across the month, with gains also offset by hospitality sector VAT cuts.

Wrap-up

We’re wrapping up early today, with markets quiet ahead of the Fed’s decision at 7pm London time. These were some of the day’s top stories:

Thanks for following along today – we’ll be back tomorrow to cover the Bank of England’s monetary policy decision.

Wall Street rises at open

US stocks have opened moderately higher ahead of this evening’s Fed decision. The industrial and energy sectors are the biggest risers.

Credit: Bloomberg TV

US retail sales disappoint

US retail sales rose just 0.6pc in August – falling short of the 1pc expected by economists. Combined with a revision to July’s growth (from 1.2pc to 0.9pc), it’s disappointing reading for investors.

That being said, US retail sales are an area that has experienced a true ‘V-shaped’ recovery:

Wall Street set to rise

With less than an hour until US markets open, futures trading is currently pointing to moderate gains on Wall Street’s top indices:

  • Dow Jones: +3.5pc
  • S&P 500: +0.4pc
  • Nasdaq: +0.2pc

Waitrose to shut more shops

Waitrose is shutting a further three branches and selling one to Tesco, putting 124 jobs at risk, as its owner the John Lewis Partnership prepares to unveil a heavy first-half loss. 

My colleague Laura Onita reports:

The supermarket chain is closing three shops in Caldicot, Ipswich Corn Exchange and Shrewsbury. It is also selling its supermarket in Wolverhampton to Tesco, and safeguarding 140 jobs. A spokesman for the partnership, which is owned by its employees, said there would be no further closures this financial year to January, taking the total to seven. Last year it shut 12 Waitrose stores as part of an ongoing review of its properties launched three years ago. Dame Sharon White formally joined in March from media regulator Ofcom and is on a mission to turn the mutual’s fortunes around. She will lay bare the damage coronavirus has been wreaking on the mutual finances tomorrow in its interim results. 

Pound continues climb against dollar

The pound has extended gains against the dollar today, with a mildly risk-on appetite ahead of tonight’s Fed announcement likely driving investors towards sterling.

US report slams Boeing over 737 Max failings

737 Max aircraft were grounded around the world in the wake of two deadly crashes Credit: MARK RALSTON/AFP via Getty Images

 

Boeing has come under attack from US politicians in a damning report investigating the ill-fated 737 Max in the wake of two crashes that killed almost 350 people.

My colleague Alan Tovey reports:

The House Committee on Transportation said the aerospace giant risked passenger safety through cost-cutting and faulty design to boost profits, had a “culture of concealment” that hid crucial information, and pressured the Federal Aviation Authority (FAA) to override concerns raised by the regulator's own experts.

Congressman Peter De Fazio, the committee's Democrat chairman, said the report “lays out disturbing revelations about how Boeing - under pressure to compete with Airbus and deliver profits for Wall Street - escaped scrutiny from the FAA, withheld critical information from pilots, and ultimately put planes into service that killed 346 innocent people”.

He added: “What’s particularly infuriating is how Boeing and FAA both gambled with public safety in the critical time period between the two crashes.”

The first 737 Max crashed off Indonesia in October 2018, killing 189 passengers and crew aboard the Lion Air flight. 

The following March an Ethiopian Airlines flight went down near Addis Ababa, with the loss of 157 lives. The aircraft was subsequently grounded.

Markets flat

Despite rising slightly in the wake of the OECD’s improved economic forecasts, European equities remain in a holding pattern ahead of this evening’s Federal Reserve decisions. The FTSE 100 is lagging the pack slightly, weighed down by banks and under some pressure from a rising pound.

BA backtracks on ‘fire and rehire’ plans

The boss of British Airways has committed not to ram through a policy of “firing and rehiring” cabin and ground crew.

My colleague Oliver Gill reports:

Alex Cruz told MPs that the airline was in talks with unions over a radical restructuring of operations that have been ripped apart by coronavirus.   

“There will be no need to issue new contracts,” he told the House of Commons transport committee. “No need to fire and rehire.”

Conservative MP Huw Merriman, who chairs the committee, said this was “a change of position and a welcome one”.

BA announced plans to make up to 12,000 staff redundant earlier this year. Although it managed to agree job cuts with pilots, it struggled to persuade the Unite union, which represents cabin and ground crew, to the negotiating table.

Galliford Try losses narrow as Redrow plans to reinstate dividend

A worker surveys roof timbers at a Galliford Try build Credit: Roger Bamber / Alamy

Galliford Try posted narrowing losses for the year to the end of June and forecast a return to profit next financial year, while rival Redrow said it would restore its dividend next year despite reporting a sharp decline in profits. 

My colleague Simon Foy reports

Galliford reported a pre-tax loss of £34.6m for the 12 months to June 30, compared with a £64.5m loss last year, after disposing of its housebuilding division. Revenues declined by a fifth to £1.12bn. 

The housebuilder also recorded a year-on-year increase in its order book, which now stands at £3.2bn. It expects to resume dividend payouts next year after cancelling them in March at the height of the pandemic. 

It came as housebuilder Redrow profits tumbled by two-thirds to £140m for the year, as revenues dived by 37pc to £1.34bn.

However, the company said it now had a “record order book” and had completed “substantially more homes in the first few weeks of the new financial year” than during the same period last year.

Prices likely continued to rise during summer

Samuel Tombs from Pantheon Macroeconomics says falling employment and rising mortgage rates will put pressure on house prices “soon”, but says June’s climb likely represents the start of a summer rise:

Looking ahead, house price growth likely picked up further over the summer, not least in response to the lifting of the threshold for stamp duty on July 8.

Nonetheless, we expect house prices to fall back in the winter, as pent-up demand fades and the adverse impact of lower employment and higher mortgage rates is felt. Accordingly, we think that house prices will be about 3pc lower than at present this time next year.

He produced this heatmap, which shows London’s housing market is doing better than in 2018 and 2019, despite the pandemic:

Credit: Pantheon Macroeconomics/ONS

UK house prices hit record high in June

Average house prices increased by £8,000 in the month to June to a new high of £238,000, despite lockdown, new data shows.

My colleague Melissa Lawford reports:

Values jumped by 2.7pc between May and June (on a non-seasonally adjusted basis) compared with a monthly increase of just 0.4pc in the same period in 2019, according to the Office of National Statistics.

This brought annual growth to 3.4pc across Great Britain, with an even larger spike of 4.2pc in London.

However, the numbers could change significantly. Last month, the rate of growth in May was recorded at 2.9pc. It has since been revised down to 1.1pc. The June figures could follow a similar pattern.

As housing transactions take a couple of months to complete, the June data represents the first month in which sales that happened during the market shutdown will have filtered into the national statistics.

The high rate of growth may reflect the unusual conditions of pent-up demand in the market at this time, the ONS said. The June price data is likely driven by transactions in which buyers were able to complete quickly (namely, those without chains), as well as previously agreed sales that were temporarily suspended by the shutdown. 

OECD warns second wave could stall global recovery

People on the Paris metro system yesterday Credit: Julien Mattia/Anadolu Agency via Getty Images

Resurgent Covid-19 cases next year could slash the global pandemic recovery in half at a cost of trillions of dollars, the Organisation for Economic Cooperation and Development (OECD) has warned.

My colleague Russell Lynch reports:

The think tank’s latest outlook predicts a shallower 4.5pc slide in world growth this year than it initially feared in June thanks to faster recoveries in the US and China, before a 5pc recovery next year.

But it also sounded the alarm over the potential impact of further restrictions and a second wave of the virus as countries across the world struggle with rising case numbers and the UK’s new “rule of six” puts limits on social gatherings.

Its interim economic outlook stated: “A stronger resurgence of the virus, or more stringent containment measures, could cut 2-3 percentage points from global growth in 2021, with higher unemployment and a prolonged period of weak investment.”

The blow could wipe as much as $2.6 trillion off the size of a global economy estimated at $86 trillion by the World Bank in 2018.

The OECD previously said the UK would be the biggest economic victim of Covid-19 but now forecasts a 10.1pc hit to growth this year - down from 11.5pc in June but still deeper than the Bank of England's forecast of a 9.5pc slide.

Thomas Cook returns as online travel group

Travel group Thomas Cook has been relaunched as an online-only brand, nearly a year after thousands of Brits were left stranded after it it dramatically collapsed.

The company, which is now owned by Chinese group Fosun, has a new booking website though which customers can organise trips. it said in a statement.

Chief executive Alan French said the company will operate a trust model, in which it will only receive customers’ cash after they return from their trips.

Hitachi confirms it will exit UK nuclear project

Japanese conglomerate Hitachi has confirmed it will withdraw from plans to build a nuclear power station in the UK, confirming an FT report yesterday.

It said the decision, which deal a major blow to the UK’s nuclear ambitions, would have little impact on it financial performance. It had been set to develop a new power plant at Wylfa, on the island of Anglesey in north Wales.

As the FT reported yesterday:

Hitachi’s withdrawal from Wylfa would also hit UK plans to reduce reliance on China, which has been keen to fund other nuclear projects in the face of growing opposition from UK politicians.Hitachi bought the Anglesey site – dubbed Horizon Nuclear – from two German utility companies for £697m in 2012.But the £20bn scheme was mothballed in January 2019 after the company failed to secure a financial agreement with the UK government.

The Hut Group rises on market debut

THG boss Matthew Moulding Credit: Handout

Online health and beauty company The Hut Group’s shares have climbed as much as 28pc on its market debut, after the company raised £1.9bn in a bumper initial public offering.

It shares touched 647.9p apiece in early trading this morning, up more than a quarter from its issue price of 500p. Investor demand was high, with the IPO receiving enough demand for all the shares on offer less than an hour after it began taking orders. Shares opened at 600p.

It is London’s biggest IPO since 2017, and will make chief executive officer Matthew Moulding a billionaire. The 500p initial offer price valued the company at roughly £5.4bn, which would qualify it to join the FTSE 100 by size.

However, it has retained a ‘dual-class’ stock structure similar to many US tech groups, in which Mr Moulding – who has retained a 25.1pc stake – has the power to veto any attempted hostile takeover for the next three years. As a result, it cannot qualify for listing on the premium segment of the London Stock Exchange.

Mr Moulding said:

I am delighted that THG has received such strong support from some of the world's largest investors, which means we have been able to achieve a highly successful offer of shares in the company. The results of the offer are a clear validation of our business model, significant growth prospects, and recognition of the hard work and talent of all our colleagues.

The Manchester Airport-based group sold £920m of shares to new investors, with a further £961m sold by existing shareholders including former Tesco boss Terry Leahy.

Mr Moulding – who will take the titles of chair and chief executive officer – stands to receive a further roughly £700m if the group’s market capitalisation exceeds £7.25bn by December 2022.

THG is seen as one of Britain’s digital retail success stories – starting out from selling e-commerce services in 2004, it now operates a string of websites that sell nutrition and beauty products.

Money round-up

Here are some of the day’s top stories from the Telegraph Money team:

Market moves

European markets have made a mixed open, with the FTSE 100 falling to underperform its continental peers. Things are likely to remain in something of a holding pattern as investors await tonight’s Federal Reserve decision. 

Credit: Bloomberg TV

What was in the ONS’s basket?

One remarkable impact of the pandemic has been that the ONS’s price collectors have not always been able to get hold of a full ‘basket’ of goods by which to measure inflation. 

In August, they were able to resume full in-store collections of goods in 102 or the 141 physical stores it usually collects good from, with partial collection from a futher 26.

Reuters’ Andy Bruce has rounded up which good are still missing from the measure, and which made it back in last month:

Inflation: what the experts say

Samuel Tombs of Pantheon Macroeconomics says the headline inflation rate with remain beneath 1pc for the rest of this year. He wrote:

The rate of CPI inflation excluding catering services dropped to 0.5pc in August, from 0.7pc in July, suggesting that the headline rate will not revert fully to July’s rate in September, when the Eat Out to Help Scheme stopped.

Indeed, recent weakness in producer output price inflation will feed through to core goods inflation, which edged down to 1.2pc in August, from 1.3pc in July. In addition, electricity and natural gas prices will fall in October in response to Ofgem’s 7.5pc reduction in the default tariff price cap. 

Credit: Pantheon Macroeconomics

Noting the impact of Eat Out to Help Out, as well as delayed summer sales, Thomas Pugh from Capital Economics adds:

Some of these movements should be reversed over the coming months… Meanwhile, the drag on inflation from the previous collapse in the oil price will continue to fade. But the big picture is that it will be a few years before the economy is strong enough to sustain CPI inflation at the 2pc target. The big risk to this view is a no deal Brexit, which could cause a slump in the pound and, in turn, a temporary sharp rise in inflation to above +3.5pc. 

Computer games dominate recreation and culture cost rises

More details on those inflation contributors: the ONS says video game downloads were the biggest contributor within the recreation and culture category. It added:

Over the year-to-date, price movements for games, toys and hobbies have been less volatile than during the same period last year. It is possible that prices have been influenced by the coronavirus  lockdown changing the timing of demand and the availability of some items, particularly consoles.

However, it is equally likely to be a result of the computer games in the bestseller charts. Price movements for computer games can often be relatively large depending on the composition of these charts. 

August air fares fall for first time ever

An interesting nugget from the ONS’s commentary on today’s inflation figures: 

The EOTHO drag

Figures for the shift in CPIH month-on-month show how strong the impact of Eat Out to Help Out roved to be – it was by far the biggest drag on price growth. 

The ONS said:

The fall this year reflects the effect of the Eat Out to Help Out Scheme and, to a lesser extent, the reduction in Value Added Tax from 20pc to 5pc on the hospitality sector.

Recreation and culture costs offset Eat Out to Help Out impact

Here’s the Office for National Statistics’ breakdown of the key inflation contributors last month:

  • The largest contribution to the CPIH 12-month inflation rate in August 2020 came from recreation and culture (0.35 percentage points).
  • Falling prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme, resulted in the largest downward contribution (0.44 percentage points) to the change in the CPIH 12-month inflation rate between July and August 2020.
  • Other smaller downward contributions came from falling air fares and clothing prices rising by less between July and August 2020 than between the same two months a year ago.
  • The largest, partially offsetting, upward contributions came from games, toys and hobbies, accommodation services, road transport services and second-hand cars.

CPIH weakest since 2015

Inflation has come in strong than expected across the board, although the figures are still weak by recent standards and represent the biggest one-month drop since 2008.

CPIH – consumer price inflation including owner occupiers' housing costs – came in at 0.5pc year-on-year, its lowest 12-month rate since December 2015. CPI as a whole came in at 0.2pc.

 Here’s how the figures came in:

  • CPIH: +0.5pc year-on-year
  • CPI: –0.4pc month-on-month
  • CPI: 0.2pc year-on-year
  • CPI core:+0.9pc year-on-year

Inflation: What to expect

Here are the key numbers expected by economists and analysts from today’s inflation release:

  • CPIH (including housing costs): +0.3pc year-on-year
  • CPI: –0.6pc month-on-month
  • CPI: 0pc year-on-year
  • CPI core (excluding energy and food): +0.5pc year-on-year

The figures are likely to drop back sharply because of temporary VAT cuts for hospitality and attractions, as well as the impact of the Eat Out to Help Out meal discount scheme. They are likely to bounce back in September as the discount scheme ends.

Agenda: Low expectations for inflation

Good morning. European markets put in a solid performance yesterday, with Wall Street broadly following suit until a late slowdown.

European equities are expected to shed some of those gains today, with the FTSE 100 likely to be the biggest faller.

There are two big events today: first up, the UK’s latest inflation figures, which are expected to show core price growth at its weakest level in two decades, and secondly the Federal Reserve’s latest decisions on monetary policy, which will arrive this evening.

5 things to start your day 

1) Hitachi to abandon £20bn UK nuclear project: Spiralling costs of building a new atomic power station in Wales prompts Japanese giant to pull out of the project.

2) Blow for insurers in landmark case over Covid payouts: The FCA has claimed partial victory in the groundbreaking legal case, which could give hope to up to 370,000 businesses.

3) Relief for City as EU extends access to London clearing houses: Access to London’s €735 trillion financial derivatives market has been a key issue for European firms.

4) 'Backdoor bailout' of travel retailers nears £100m: Critics say the taxpayer is effectively giving extra support to certain businesses as state-owned Network Rail waives rents.

5) FirstGroup chief dealt bloody nose at AGM: Nearly a third of shareholders vote against the re-appointment of Matthew Gregory, who is trying to sell off the operator’s US arm.

What happened overnight 

Most Asian shares rose on Wednesday, extending a rally driven by upbeat Chinese and US economic data, but the dollar, US yields and gold held steady as investors awaited the Federal Reserve's view on the economy at its policy meeting.

Following robust industrial output and retail sales data from China and higher US factory production, investors are focusing on the Fed's policy statement due on Wednesday, the first since chairman Jerome Powell announced an increased tolerance for higher inflation.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.5pc higher. Australian shares gained 0.74pc and Taiwan's tech-heavy board added 1.16pc.

However, Chinese blue-chips pulled back 0.1pc as investors booked profits after three days of gains.

Coming up today

Full-year results: Galliford Try, Redrow

Economics: Inflation (UK), retail sales; Federal reserve rate decisions (US); OECD updates economic outlook for G20