We’re currently in what they call corporate earnings season and we’re getting a flavour of how COVID has been hitting big business. Some companies have been doing well whilst others have struggled. Marks & Spencer on the one hand has seen its first quarterly loss since it was listed on the stock market 94 years ago. By contrast, the likes of Amazon has been generating record earnings as its business model is well suited to the pandemic.
Consumer confidence both nationally and locally is not in a great place. Clearly the ongoing “political recession” isn’t helping the mood either. The good news, however, is that inflationary pressures continue to ease with the headline Consumer Price Index rising by 2.1% y/y in December. That marks the weakest rate of consumer price inflation in almost two-years. Significantly this welcomed move is coinciding with wages rising at their fastest rate in a decade.
Falling petrol prices were a key driver behind the latest downward move. Petrol price inflation slowed from 7.6% y/y in November to 1.5% y/y last month. Back in October prices were rising at 11.5%. This trend is set to continue with an easing in energy related inflationary pressures both in utility bills and petrol / diesel costs.
Significant price cuts to gas and electricity bills are expected to be announced later this month. Similarly, home-heating oil customers should see further significant falls in the coming weeks and months. Petrol and diesel prices have already fallen by around 2% in the first two weeks of January. Food price inflation also slowed dramatically during 2018. Having started the year at 3.9%, annual food price inflation eased to 0.4% in December. What does or doesn’t happen with Brexit (supply disruptions etc) could have a major bearing on food prices in 2019.
In the near-term, CPI inflation looks set to fall below the MPC’s 2% target in January with the annual pace of consumer price rises set to slow to 1.3% / 1.4% by Q4 2019. Against this backdrop and given the growing risks of a global slowdown coupled with the near-term concerns surrounding Brexit, the Bank of England isn’t going to be in a hurry to raise interest rates. 2019 could well see the Monetary Policy Committee sit on its hands and keep its Bank Rate at 0.75%.
Good news for the consumer. Not only have average UK earnings posted their largest rise since 2009 but inflation fell more than expected, boosting hopes the recent real income squeeze is coming to an end.
Earnings squeeze is over
The combination of accelerating wage growth and an easing in inflationary pressures is clearly good news for consumers. In February, annual UK wage growth (2.8%) finally overtook the equivalent rate of inflation (2.7%) for the first time since the start of 2017. Following the latest figures for March this trend looks set to continue. The annual rate of UK consumer price inflation (CPI) eased to 2.5% in March – its weakest rate in twelve months. The price of consumer goods (e.g. food & clothing) inflation eased from 3% y/y in February to 2.4% in March. Conversely, consumer services inflation nudged higher to 2.5% over the same period.
Shoppers will increasingly have noticed that the price of their groceries and the cost of filling up at the forecourt have been on the rise. Last month UK consumer price inflation, using the CPI measure, rose by 3% y/y. This represents the fastest rate of increase since April 2012. Inflationary pressures are more marked within consumer goods (+3.2% y/y) rather than services (+2.7% y/y). Meanwhile the most comprehensive measure of inflation, the CPIH index which includes owner occupiers’ housing costs along with Council Tax (or rates in NI), nudged higher to 2.8% y/y in September. Continue reading
Mark Twain said that whilst history doesn’t repeat itself, it does often rhyme. This may ring increasingly true in the months ahead, as we move into what you might call the cost of living crisis part two. For most of the last parliament, prices were rising faster than wages and the phrase ‘the cost of living crisis’ became extremely well used. However, inflation then eased, wage rises were evident, and consumers actually enjoyed something of a sweet spot. Today, that phenomenon is set to come to an abrupt end, and something of a sequel to the un-consumer-friendly conditions of a few years ago appears to be in train. Continue reading
The UK’s service sector delivered yet again in Q3, propelling the economy to a 0.5%q/q expansion. In the past five years service sector output has risen 14%. Not far behind the 17% rise in the five ‘boom’ years to 2008. So it’s a robust performance. Higher inflation will provide a test over the coming year. But at least momentum is strong.
Following the economic downturn, one of the primary reasons why households failed to experience the ‘economic recovery’ was due to what was happening with wages. Between 2009 and 2013, the median annual wage for full-time employees in Northern Ireland fell by £2,418 or 9% when adjusted for inflation. Since this low in 2013, annual wages have increased by £1,719 or 7.1% in real terms to £26,069. Despite this wage recovery, annual earnings of NI full-time workers are still almost £700 below their recent 2009 peak.
The UK economy grew by a sprightly 0.6% in Q2. But with everything viewed through a pre/post-vote prism this counts as old news. Yet not every change will be due to ‘Brexit’, with signs the economy was cooling even in May. Continue reading
The festive season is the time of the year when consumers perhaps feel under most pressure to spend. And this Christmas, they might be more inclined to do so, as 2015 has been the best year for household finances since 2008.
