FTSE 100 slips 0.3pc after inflation data
Germany has warned it will run out of gas in less than three months if Putin cuts off supplies completely.
Even if Germany can meet its target of filling its inventories to 95pc by November, that would only last for about 2.5 months, the president of the country’s energy regulator said.
Klaus Mueller, president of the Federal Network Agency, told Bloomberg: “We are a little bit faster than what we used to be in terms of filling up storage, but it is not a sign we can relax...
“I cannot promise you that all storage facilities in Germany will be 95pc full in November, even under good supply and demand conditions. In the best-case scenario, three-quarters of them will meet the target.”
Stockpiles are currently 77pc full, which is two weeks ahead of schedule. However, Germany’s energy crisis looks set to deepen, prompting warnings from Berlin of rationing this winter.
It came as German utility Uniper crashed to a €12bn (£10bn) loss as it was left reeling by Putin’s gas cuts.
The loss at the company, which was last month bailed out by the German government, ranks among the biggest in the country’s corporate history and highlights the severity of the crisis gripping Europe.
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FTSE 100 hit by inflation data
The FTSE 100 slipped today after inflation jumped to 10.1pc in July, raising bets about more aggressive interest rate hikes by the Bank of England.
The blue-chip index ended 0.3pc lower, dragged down by declines in insurers and bank stocks.
Sanjay Raja, senior economist at Deutsche Bank, said: "We now see risks tilted to an even more front-loaded and protracted hiking cycle with inflation expectations increasingly at risk of destabilising further in the coming months.
"We see the peak in inflation delayed to next year with inflation likely to remain in double digits at least until late Q2-2023."
Boohoo increases stake in Revolution Beauty
Boohoo has made a "strategic investment" in Revolution Beauty to grow its stake to 7.1pc of the online beauty retailer.
Shares in Revolution Beauty jumped 15pc, although they remain heavily below its float price from last year.
Fast fashion giant Boohoo, which has seen its own valuation wain in recent months, will now be the fourth-largest shareholder in Revolution. Boohoo already sells the beauty brands' products through a number of its e-commerce platforms, including Debenhams.
It comes a week after Revolution warned its annual financial results could be impacted by accounting issues flagged by auditors.
Britain’s biggest satellite company wins $500m US Navy contract
The US Navy has awarded British satellite operator Inmarsat a $578m (£478m) contract ahead of its takeover by an American rival. Matthew Field reports:
Inmarsat said it had secured the multi-million pound deal to develop and maintain a satellite communications network for the US Navy Military Sealift Command.
The US Navy’s Sealift division provides logistics, transportation and cargo capacity to its armed forces. This includes operating tankers that refuel larger vessels, running ammunition ships, cargo carriers and crewing the US Navy’s Mercy ships, which are supertankers converted into floating hospitals. Other services include tugs, salvage ships and floating naval radar platforms.
Royal Mail workers back new strike action
Royal Mail workers have voted massively in favour of strikes in a dispute over pay and conditions, increasing the threat of disruption to postal deliveries.
Members of the Communication Workers Union (CWU) backed strikes by 98.7pc on a turnout of more than 72pc.
It was the second ballot of Royal Mail workers, who are already planning to strike on August 26 and 31 and September 8 and 9 in a separate row over pay.
CWU general secretary Dave Ward said: "We will do everything possible to see if we can make progress but the Royal Mail management has to change its position.
"If they don't, then we will take strike action."
FDA says faulty Philips device reports accelerating as chief departs
The US Food and Drug Administration (FDA) said reports of faulty Philips ventilators and sleep apnea machines had risen in the past quarter, underlining problems facing the Dutch company, which has just announced plans to replace its boss.
Philips says it is approximately halfway through a recall of 5.5m such devices in the US due to the threat posed by a foam part they contain - a problem that has alarmed customers, damaged the company's reputation and helped wipe $30bn (£25bn) off its market capitalisation.
The FDA said on Tuesday it had received 48,000 reports associated with breakdown or suspected breakdown in the foam used in Philips respirators over the three months ending July 31, 2022, more than twice the number of such reports it received between April 2021 and April 2022.
"A wide range of injuries have been reported in these (reports) including cancer, pneumonia, asthma, other respiratory problems, infection, headache, cough, difficulty breathing, dizziness, nodules, and chest pain," the FDA said. The reports are not proof that Philips devices were responsible.
PR firm executive accused of profiting from insider knowledge of credit agency hack
Three people have been accused of trying to illicitly profit from their knowledge of a huge data hack that affected 15 million Britons, writes Gareth Corfield.
US authorities charged finance manager Ann Dishinger, her partner Lawrence Palmer and his brother Jerrold Palmer with illegally trading Equifax’s shares after they found out about a 2017 hack at the company but before the news was released to the public.
The SEC said one of those engaged in a share trading scheme used a codeword inspired by the 1987 film Wall Street.
Cyber criminals acquired the personal details of 143 million people from Equifax in a hack in 2017. 15 million of those affected were British.
Ms Dishinger worked at a public relations firm hired by Equifax to handle the fallout from the security breach. She heard about the hack through colleagues before it was publicly announced.
The US Securities Exchange Commission, a stock market regulator, alleges she tipped off her partner Lawrence about the upcoming announcement.
Glazers open to Man United stake sale
The Glazer family is reportedly considering the sale of a minority stake in Manchester United amid growing pressure over their ownership of the football club.
The owners have held some preliminary discussions about bringing in a new investor, Bloomberg reports. But the American family is not yet ready to give up control of the club, which could be valued at £5bn.
Any stake sale is likely to attract a host of big-name investors, similar to the recent takeover of Chelsea led by US billionaire Todd Boehly.
Last night Elon Musk tweeted that he was buying Man United, before clarifying he was joking.
Boat blocks the Rhine just as water levels start rising
A boat is blocking the Rhine river, dealing another blow for the key waterway that's become difficult to navigate because of drought.
A section of the river between St Goar and Oberwesel is closed, a spokesman for the WSA water authority said. That's on a narrow part of the river near the key Kaub chokepoint.
The blockage comes just as the water level at Kaub starts to edge higher. Low water levels are restricting the shipment of commodities along the Rhine, putting a further strain on energy supplies.
The stranded ship is made up of four parts, which will have to be separated from one another before they can be towed away.
Work has begun and it's possible the river could reopen as early as today, the spokesman said.
Arriva North West workers suspend strike
While the UK is braced for more rail strikes from tomorrow, there's at least some relief for passengers in some parts of the country.
The Unite union said strikes at Arriva North West have been called off after the bus company put forward an improved p[ay offer.
Around 1,800 workers, who've been on strike since July 20, will return to work from tomorrow and be balloted on the offer.
The union said the one-year 11.1pc pay rise, which will be backdated to April, applies to more than 2,000 Unite members.
US stocks slide after Target results
Wall Street has started the day in the red following weak results from Target, while markets were also on edge ahead of minutes from the Federal Reserve's July meeting.
Target Corp fell 6.5pc after reporting a 90pc fall in quarterly profits as its customers reined in spending. That contrasted to more upbeat figures from Walmart and Home Depot yesterday.
The S&P 500 opened 0.6pc lower, while the Dow Jones fell 0.4pc. The tech-heavy Nasdaq dropped 1pc.
Working from home to cost £175 in energy bills this winter
The working from home revolution will cost workers hundreds of extra pounds in energy bills this winter, a prospect that could encourage thousands to get back to their desks.
Lucy Burton has more:
Britain’s large number of homeworkers are expected to feel the pinch much more than those commuting to their offices over the winter months as they use more electricity and gas per day, experts have warned.
Average monthly energy bills could hit £683 in January for home workers compared to £492 for those going into work, according to price comparison site Uswitch.
Even those commuting into central London could save money after Tube and bus costs are taken into account, data from Bloomberg has found, with those who walk or cycle in saving as much as £175 a week.
Uswitch's energy expert Will Owen said: “Having the heating on during the colder months will be the biggest contributor to higher energy bills for those working from home.
“Being at home throughout the day often also means using extra gas and electricity for cooking, making cups of tea, televisions and computers. For most people who don’t have a significant commute, working from the office is likely to be much more economical this winter.”
US retail sales flatline as inflation takes its toll
The pace of sales at US retailers was unchanged last month as persistently high inflation and rising interest rates forced many households to spend more cautiously.
Retail purchases were flat in July after having risen 0.8pc in June, according to Commerce Department data.
US consumers, whose spending accounts for nearly 70pc of economic activity, have remained mostly resilient even with inflation near a four-decade high, economic uncertainties rising and mortgage and other borrowing rates surging.
Still, their overall spending has weakened, and it has shifted increasingly toward necessities like groceries and away from discretionary items like home goods, casual clothes and electronics.
The monthly report on retail sales covers about a third of all consumer purchases and doesn't include spending on most services ranging from plane fares and apartment rents to movie tickets and doctor visits.
While inflation remains painfully high, consumer prices were unchanged from June to July, in a sign price rises may have peaked.
Deutsche Bank: Pound may benefit from lower inflation goal
The pound could be handed a boost if the Government decides to tighten the Bank of England's inflation mandate.
That's according to Deutsche Bank economist Sanjay Raja, who warned that targeting GDP could damage the Bank's credibility.
However, he said lowering the current goal of keeping inflation at 2pc could lift the pound.
He wrote: "While a stricter inflation target would add to the Bank's current hawkish leaning, it's unclear how much of an effect this would have on near-term policy.
The BoE's current target it symmetric, meaning reading below and above 2pc are both undesirable. But Mr Raja said the Government could adopt an asymmetric target of "below but close to 2pc".
That could also "skew the Bank's bias toward tighter policy going forward", he said.
Tory leadership frontrunner Liz Truss has vowed to review the Bank's inflation remit. While she hasn't specifically said what that might entail, her allies have mentioned a nominal GDP goal.
The charts that show Andrew Bailey has failed to get a grip on inflation
Two weeks ago, Andrew Bailey set out to sound tough on price rises.
“Returning inflation to its 2pc target remains our absolute priority, no ifs, no buts,” the Governor of the Bank of England said as he raised interest rates from 1.25pc to 1.75pc in the biggest increase in borrowing costs for more than 25 years.
Little did he know it, but inflation was already accelerating faster than the Bank predicted, rising into double figures last month.
Read more from Tim Wallace and the production team here.
Traders bet BoE will more than double rates by May
Money markets are now betting that the Bank of England will more than double interest rates over the next nine months after the latest inflation figures outstripped expectations.
Traders are betting on a further 200 basis points of rate rises by May to help get a grip on surging prices.
The MPC this morning increased rates by the most in almost three decades to 1.75pc. Another 50 basis-point increase is now priced in for the first time in a month.
US futures slide amid Fed worries
US futures declined this morning as concerns over the Federal Reserve's interest rate rises outweighed solid company results.
Wall Street has rallied on signs of peaking inflation and a results season that's seen four out of five companies meeting or beating estimates.
But ongoing interest rate hikes and the likelihood of a recession in the world’s largest economy are weighing on sentiment.
Futures tracking the S&P 500 fell 0.5pc, while the Dow Jones was down 0.4pc. The tech-heavy Nasdaq lost 0.7pc.
London rents surge amid supply shortage
London rents surged by the most in about five years last month as demand continued to outstrip the supply of properties.
Private rental prices in the capital grew 2.1pc in the year to July, according to the ONS. While that's the lowest in England, London is quickly catching up with an acceleration in rents since the start of the year.
The figures add to the gloomy outlook for households amid surging inflation, with higher rental prices adding to the cost-of-living burden.
Pubs and restaurants to keep pushing up prices
Brits hoping to enjoy a meal out in the coming months can expect an ever bigger hit to their wallets.
Pub and restaurant bosses are planning to raise menu prices by 6pc over the next year to cover the costs of higher energy bills, food and labour. That's on top of an average increase of 9pc over the last year.
The figures highlight the pressure on households, with inflation now in double figures. Many people are having to cut back on spending as a result.
Meanwhile, more than two-thirds of hospitality businesses have seen significant increases in energy costs and 60pc have experienced higher prices on food and drinks.
Karl Chessell, at consultancy CGA, which carried out the survey, said:
Hospitality’s long-term future is bright, but for now leaders will have to find the right balance between absorbing soaring costs and passing them on to guests.
The huge supply challenges also highlight the need for urgent and sustained government support for the sector.
Germany's Uniper crashes to €12bn loss
Uniper has crashed to a loss of more than €12bn (£10bn) as a crisis continues to engulf Europe's energy markets.
The loss at the utility, which was last month bailed out by the German government, ranks among the biggest in the country's corporate history and highlights the severity of the crisis ahead of winter.
Europe's largest economy has been particularly exposed to Putin's gas cuts due to its high levels of energy imports from Russia.
Klaus-Dieter Maubach, chief executive of Uniper, said: "Uniper has for months been playing a crucial role in stabilising Germany's gas supply – at the cost of billions in losses resulting from the sharp drop in gas deliveries from Russia."
The loss includes a €6.5bn hit from future gas shortages and reflects impairments of €2.7bn related to its loan to the suspended Nord Stream 2 pipeline.
Eurozone economy grows less than expected
The eurozone economy grew slightly less than expected in the second quarter as surging inflation and a deepening energy crisis spark fears of a slowdown.
GDP rose 0.6pc from the previous three months, according to figures from Eurostat. That's lower than a preliminary reading of 0.7pc. Employment climbed 0.3pc.
While the figures show Europe was on a relatively firm footing entering the summer, Russia's gas supply cuts threaten to drive inflation even higher and tip the bloc into recession.
House price growth slows faster than during financial crisis
The property market has cooled faster than in the height of the financial crisis as buyers contend with soaring interest rates and rampant inflation, writes Rachel Mortimer.
House price growth slowed from 12.8pc to 7.8pc between May and June, one of the biggest monthly drops in annual growth ever recorded by the Office for National Statistics.
In the throes of the financial crisis house price growth fell from a high of 10.8pc in June 2007 to a low of -15.6pc in February 2009, a fall of 26.4 percentage points.
But the largest monthly slowdown during this time was a rate drop of 2.5 percentage points. In comparison annual house price growth fell by 5 percentage points in just one month between May and June 2022.
The average property value climbed to £286,000 in June, a jump of £20,000 in the space of a year, although price falls are predicted to be imminent as the cost of living catches up with the housing market. The ONS noted house price inflation had slowed so significantly in June because of huge house price rises in the same month last year, the final month in which buyers could benefit from the full stamp duty break.
Asos shares fall as finance chief steps down
Shares in Asos slid this morning after a top executive announced he's stepping down from the online fashion retailer.
Mat Dunn, chief financial officer and chief operating officer, will step down after October as Asos restructures its management and stay with the company until the end of the year to provide "transitional support".
Shares fell as much as 8pc.
It's the latest blow for Asos, which has suffered a torrid time as the cost-of-living crisis hits consumers' wallets. It issued a surprise profit warning in June, having already said inflation and the war in Ukraine would dent profits.
Hundreds of thousands of UK households ditch Amazon Prime
IYCMI – Almost 600,000 British households cancelled their Amazon Prime subscriptions ahead of a price rise as the cost of living crisis hits streaming companies.
Ben Woods has more:
The number of UK Prime customers fell by 590,000 in the second quarter of 2022 according to Ofcom, the industry watchdog, a drop of 5pc. Amazon announced an increase in its fee by £1 a month to £8.99 in July.
Meanwhile Netflix endured a 1pc fall in subscribers, down by 210,000 year on year to 17.1m during the second quarter, as viewers tightened their belts to counter soaring inflation.
Disney bucked the trend by adding 1.8m subscribers to 6.6m – an increase of 38pc – as the Star Wars producer became the world's biggest streaming service, although its rate of growth slowed from previous months.
Overall, Ofcom's Media Nations report found the number of households subscribing to at least one streaming service had fallen by 350,000 to 19.2m
Despite the drop, the media watchdog said that some of those subscribers may return when the economic horizons brighten.
Germany will run out of gas in three months if Putin turns off taps
Germany may be racing to fill up its gas reserves, but the country will still struggle to get through the winter.
Even if Germany can meet its target of filling its inventories to 95pc by November, that would only last for about 2.5 months, the president of the country's energy regulator said.
Klaus Mueller, president of the Federal Network Agency, told Bloomberg: "We are a little bit faster than what we used to be in terms of filling up storage, but it is not a sign we can relax...
"I cannot promise you that all storage facilities in Germany will be 95pc full in November, even under good supply and demand conditions. In the best-case scenario, three-quarters of them will meet the target."
Stockpiles are currently 77pc full, which is two weeks ahead of schedule. However, Germany's energy crisis looks set to deepen and the Government has warned of rationing over winter.
Manchester United shares surge after Elon Musk takeover 'joke'
Elon Musk is at it again.
The Tesla billionaire, who's known for his reckless tweets, announced on Twitter last night that he was buying Manchester United. He let 4.5 hours pass before clarifying it was a joke.
Shares in the football club surged as much as 17pc in pre-market trading, before paring gains to trade around 3pc higher.
Also, I’m buying Manchester United ur welcome
— Elon Musk (@elonmusk) August 17, 2022
Interest rates may need to hit 4pc, says Andrew Sentance
The Bank of England may need to more than double interest rates by the end of this year to get inflation under control, a former MPC member has said.
Andrew Sentance, who served at the Bank during the last financial crisis, said rates may need to rise to 3pc or even 4pc because policymakers have "fallen behind the curve".
He told BBC Radio 4: "The Bank of England has been quite slow in responding and is clearly behind the curve in trying to get on top of this surge in inflation.
"They don't have an easy job at the moment, but they do have tools at their disposal, particularly interest rates, and they've been rather slow in moving them upwards."
The comments were echoed by Stuart Rose, chairman of Asda and former boss of M&S. He took aim at the Government for failing to act immediately and criticised the two leadership contenders for focusing on tax cuts.
"Inflation is pernicious. It erodes wealth," he said. "I want to look after those people who cannot afford to take the hit, and we know who they are.
"I don't think you can grow your way out of inflation. You need to kill inflation first. Of course you need to sew the seeds of growth. But you can't do both."
Cineworld shares plummet as it warns shareholders face dilution
Cineworld shares have nosedived this morning after the company said it's considering rescue deals that could dilute shareholder value.
The cinema chain said it's in discussions to secure additional funding and potentially restructure its balance sheet. It warned the measure was likely to result in "very significant dilution" of existing equity interests.
Shares in Cineworld plunged as much as 42pc to a record low.
Meanwhile, the struggling cinema group also said audience numbers had been weaker than expected and warned they would stay low until November due to "limited" film releases.
The debt-laden company, which also owns the Picturehouse chain, had been pinning its hopes on films including Top Gun: Maverick and The Batman, but said recent admissions had been lower than expected.
FTSE risers and fallers
The FTSE 100 has edged higher this morning after new figures showed inflation surged by more than expected into double figures.
The blue-chip index rose 0.1pc in early trading, propped up by banking stocks.
Lloyds gained 0.8pc, while Barclays was up 0.9pc as traders increased their bets on aggressive interest rate rises by the Bank of England.
The domestically-focused FTSE 250 was also up 0.1pc. Cruise operator Carnival jumped more than 6pc after it said booking activity nearly doubled pre-pandemic levels following an easing of Covid testing rules.
Ladbrokes owner handed record fine over gambling failures
Away from inflation gloom, the owner of Ladbrokes has been handed a record fine for failing to meet gambling standards.
Entain, which also owns Coral, was hit with a £17m penalty from the Gambling Commission due to "serious failures" in social responsibility and anti-money laundering.
Andrew Rhodes, chief executive of the regulator, said that further serious breaches of the rules would make the remove of Entain's licence "a very real possibility".
It's the second time the company has been fined. Ladbrokes and Coral were fined £5.9m before being taken over by GVC, which was renamed Entain in 2020.
A spokesman for the gambling group said: "Entain has entered into the regulatory settlement with the Commission in order to bring the matter to a close and avoid further costly and protracted legal proceedings."
Which prices are rising fastest?
The latest stats show inflation has set in across the economy, with a broad range of goods and services suffering from higher prices.
Szu Ping Chan breaks down the products that have seen the biggest price rises, as well as those that have go cheaper:
The ONS said the average price of a litre of petrol stood at 189.5p in July, compared with 132.6p a year earlier. Diesel prices also climbed to 197.9p, from 135.5p.
While prices at the pump have fallen in recent weeks, the overall annual increase stood at 43.7pc in the year to July 2022.
The data also laid bare the price rises facing shoppers at the supermarket.
The average price of a packet of pasta climbed 24pc over the past year. Dairy products have also soared, with butter prices up 27pc and cheese 17.9pc.
Milk is up an average of 28pc over the past year, while prices for skimmed, semi-skimmed and other "low fat" alternatives have climbed even faster, rising by a third over the past year.
Meat prices have also soared, with lamb prices up 16.7pc, while condiments like jam and olive oil are up by a fifth.
Clothing prices are also up by an average of 6.9pc, while some goods which have traditionally fallen in price as technology improves also rose, including mobile phones.
Laptop and computer prices have fallen over the past year. The price of eBooks and camping equipment were among a few other products that have also seen falling prices.
Reaction: Income squeeze will be difficult to ignore
Hussain Mehdi at HSBC Asset Management says more support for households is needed, but this still won't avert a recession.
Inflation continues its upward ascent with no respite expected in the coming months as household energy bills rise even further and services inflation remains bolstered by ongoing labour market resiliency.
The extent of the income squeeze now facing households will be difficult to ignore and measures aimed at shielding the most vulnerable are likely.
However, overall real spending power will remain very constrained and amid a still hawkish Bank of England, recession this year is a base case outcome.
Despite the UK having one of the most challenging economic backdrops among advanced economies, the FTSE 100 has outperformed other major global indices and exposure to blue-chip natural resources firms has been a positive.
We remain constructive on the UK market in a backdrop of high commodity prices, while many large-cap value and defensive names can perform well in the current macro environment.
FTSE 100 opens higher after inflation data
The FTSE 100 has shrugged off the latest inflation figures to push higher at the open.
The blue-chip index ticked up 0.1pc to 7,544 points.
Chancellor: I understand times are tough
Here's what Chancellor Nadhim Zahawi has to say about the latest inflation figures:
I understand that times are tough, and people are worried about increases in prices that countries around the world are facing.
Although there are no easy solutions, we are helping where we can through a £37bn support package, with further payments for those on the lowest incomes, pensioners and the disabled, and £400 off energy bills for everyone in the coming months.
Getting inflation under control is my top priority, and we are taking action through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost productivity and growth.
Reaction: Policymakers stuck between rock and hard place
Mike Bell at JP Morgan Asset Management warns the continued wage growth poses a dilemma for policymakers.
Rising inflation is really putting the squeeze on real wages, even with strong wage growth. And with the increase in energy bills coming in October, it’s only set to get worse.
To avoid a large hit to consumers, significant further fiscal stimulus would be required beyond what is currently being proposed by either candidate to be the next prime minister.
However, if enough stimulus is provided to largely offset the hit to consumers, then the Bank of England may well feel the need to continue raising interest rates. This could then pose a risk to consumption and the housing market via higher mortgage costs.
So unless wage growth and hence underlying inflationary pressures moderate on their own without a rise in unemployment, UK policymakers are stuck between a rock and a hard place.
Reaction: Not all bad news
FX analyst Viraj Patel chimes in with some much-needed optimism, pointing out that it's not all bad news in the latest numbers.
He says that prices in some categories actually fell month on month, but still contributed to annual inflation due to comparisons against last year, when the UK was emerging from lockdown.
⚠️ Also not all bad news when it comes to UK inflation. There's a significant amount of base effects in this report (recall last summer the UK was coming out of lockdown). A lot of components that saw lower monthly prices actually contributed heavily to annual inflation $GBP https://t.co/sMgewtmFRf pic.twitter.com/vtWIKDrrmP
— Viraj Patel (@VPatelFX) August 17, 2022
PwC: Things are going to get a lot worse
Kien Tan, director of retail strategy at PwC, warns the strain on household budgets is only set to get worse.
Following yesterday's confirmation that real earnings declined by a record 3pc in between April and June this year, today's CPI inflation figures confirm that things are going to get a lot worse for retailers – and consumers – before they get better.
By far the biggest contribution to today’s record 10.1pc CPI figure came from food prices, with the monthly increase of over 2pc between June and July the highest seen in 20 years, and exceeding last month’s already heightened rate of growth.
Supermarkets have had little choice but to pass on price increases from suppliers, themselves contending with unprecedented inflation in raw material and ingredient input costs.
This has been particularly acute in labour and utility intensive categories like dairy, with reports of the price of a pint of milk having more than doubled in some stores since the start of the year.
Furthermore, the Bank of England reported in its latest Monetary Policy Report that supermarkets expected inflation to increase further in coming months, so there is unlikely to be any let up in the run up to Christmas, particularly as the delayed effect of input cost inflation starts being passed through in other categories such as meat, vegetables and packaged groceries.
Reaction: BoE will stay in hawkish mode
Ruth Gregory, senior UK economist at Capital Economics, says the hotter-than-expected inflation figures are likely to prompt another big interest rate rise.
The rise in CPI inflation from 9.4pc in June to a new 40-year high of 10.1pc in July was the eighth upside surprise in the past ten months.
Together with June’s leap in earnings growth, this increases the chances that the Bank of England will opt for a 50 basis point interest rate hike on September 15, rather than 25 basis points.
While inflation in the US may now have reached a peak, we still think that CPI inflation in the UK will rise to at least 12.5pc in October and that the Bank of England will raise interest rates from 1.75pc now to 3pc, even when the economy is in recession.
That remains a higher forecast than the peak of 2.55pc envisaged by the consensus of analysts.
Pound rises after inflation surge
Sterling has pushed higher against the dollar after the sky-high inflation figures fuelled expectations of further interest rate rises.
The higher-than-expected consumer price index figure will pile pressure on the Bank of England to act aggressively. Earlier this month it raised rates to 1.75pc in the first half-point increase since 1995.
Traders are now betting that the Bank will double rates to 3.5pc by March.
The pound rose as much as 0.3pc against the dollar to $1.2113. Against the euro it was up 0.1pc at 83.93p.
Core inflation keeps rising
Aside from the headline figure, another worrying sign for the Bank of England is the continued rise in core inflation.
This measure strips out volatile food and energy costs, so gives an indication of how price rises are setting in across the wider economy.
Core CPI rose 0.6pc in July to an annual rate of 6.2pc. With food the main driving force behind inflation last month, it's clear the price pressures have become embedded.
CPI rose 0.6% on the month. Usually prices fall in July. Last year they were flat. Food, non-alcoholic beverages and transport made the largest contributions to the monthly rise. pic.twitter.com/V6VjJgTdNk
— Keith Church (@keithbchurch) August 17, 2022
Pressure mounts on Bank of England
The higher-than-expected inflation figure will add more pressure on the Bank of England to keep raising interest rates to keep a lid on price rises, writes my colleague Szu Ping Chan.
Policymakers have lifted the cost of borrowing six times in a row to 1.75pc in a bid to cool the economy.
But the Monetary Policy Committee (MPC) that sets interest rates did not expect inflation to hit double digits until September.
The Bank believes price rises will peak in October, though some analysts believe inflation will climb even higher at the start of next year, when the energy price cap could soar above £4,000.
ONS: Price rises wide-ranging
Grant Fitzner, ONS chief economist, said:
A wide range of price rises drove inflation up again this month. Food prices rose notably, particularly bakery products, dairy, meat and vegetables, which was also reflected in higher takeaway prices.
Price rises in other staple items, such as pet food, toilet rolls, toothbrushes and deodorants also pushed up inflation in July.
Driven by higher demand, the price for package holidays rose, after falling at the same time last year while air fares also increased.
The cost of both raw materials and goods leaving factories continued to rise, driven by the price of metals and food respectively.
Food drives prices higher in July
Once again, surging energy bills are one of the main driving forces behind surging inflation.
But the data shows food was the biggest factor behind the jump in prices in July as Brits were forced to splash out more on their supermarket shop.
The largest movements came from bread and cereals (0.06 percentage points), milk, cheese and eggs (0.05 percentage points), and vegetables (including tubers), meat, sugar, jam, honey, syrup, chocolate and confectionary, which each contributed 0.04 percentage points to the change in the annual rate.
Inflation surges by more than expected
The numbers are in and they're even worse than expected.
Inflation has soared into double figures, with the consumer price index hitting 10.1pc in July. That's more severe than the 9.8pc economists had been predicting.
Inflation hits fresh 40-year high
We start the day with another set of eye-watering inflation figures highlighting the escalating cost-of-living crisis.
The consumer price index rose to 10.1pc in July – up from 9.4pc the previous month and the highest in four decades, according to the ONS.
Core inflation, which strips out volatile food and energy costs, hit 6.2pc. The retail price, which is used for pricing some public services including train fares, rose to 12.3pc.
The numbers highlight the strain on British families, with inflation forecast to surge above 13pc later in the year after another jump in energy bills.
The Bank of England has also warned that the UK will be plunged into a deep recession, with households facing the biggest fall in living standards on record.
5 things to start your day
1) Hundreds of thousands of UK households ditch Amazon Prime Cost of living crisis hits streaming companies hard, according to Ofcom report
2) Chaos in corporate Britain as wages crash despite record job vacancies Companies consider one-off bonuses in fight for talent as inflation eclipses pay rises
3) World’s biggest airline orders 30 ‘son of Concorde’ supersonic jets Boom planes are predicted to fly from London to New York in three and a half hours by 2030
4) Aldi to overtake Morrisons as UK’s fourth largest supermarket Cost of living crisis forces shoppers to switch grocery shops
5) Russian gas exports slump by a third in blow to Putin Gazprom could be forced to close gas fields as it struggles to divert supplies to China
What happened overnight
Tokyo stocks opened higher this morning, with the benchmark Nikkei 225 index up 0.4pc in early trade and the broader Topix index climbing 0.5pc.
Hong Kong shares started with healthy gains following a positive lead from Wall Street. The Hang Seng Index added 0.8pc.
While the Shanghai Composite Index inched up 0.1pc and the Shenzhen Composite Index on China's second exchange also rose 0.1pc.
Coming up today
Corporate: Balfour Beatty, Essentra, Persimmon (interims)
Economics: Inflation (UK), central bank decision (New Zealand), retail sales, Fed minutes (US)