Investments; October inflation numbers and more.

• October inflation numbers
• The borrowing slows down

 

October inflation numbers

(AF4, FA7, LP2, RO2)

The CPI for October rose 0.2% to an annual rate of 0.7%, 0.1% higher than market expectations. Across September to October prices were flat, whereas they decreased by 0.2% over the same period last year.                    

The CPI/RPI gap was unchanged at 0.6%, with the RPI annual rate rising from 1.1% to 1.3%. Over the month, the RPI was unchanged.

The Office for National Statistics (ONS)’s favoured CPIH index was also up 0.2% for the month to 0.9%.

The number of items in the CPIH ‘shopping basket’ that were unavailable to consumers in the UK remained at 8 (or 1.1% of the CPIH basket by weight) in October. The ONS says that it “collected a weighted total of 90.0% of comparable coverage collected previously (excluding unavailable items)”, down 0.2% on September.

The ONS highlights the following as the more significant of the moves causing the rise in the CPIH inflation rate:

Upward

Clothing and footwear The largest upward contribution came from this category. Clothing prices overall rose by 2.8% between September and October 2020, compared with an increase of 0.9% between the same two months a year ago. Most of the upward contribution came from women’s wear. There were further smaller upward contributions from men’s and children’s wear. A partial offset came from a small downward movement from footwear.

Food and non-alcoholic beverages All the upward contribution here came from food prices, which rose by 0.1% between September and October 2020, compared with a fall of 0.6% between the same two months a year ago. The largest upward contributions came from vegetables (including potatoes and tubers), and fruit. The CPI inflation rate for this category is now 0.6%, whereas in September it was -0.1%.

Furniture, household equipment and maintenance There were upward contributions across the broad group, especially from furniture, furnishings and carpets; household textiles; and glassware, tableware and household utensils. These were partially offset by a small downward contribution from household appliances, fitting and repairs, where prices overall fell this year but rose a year ago.

Transport There was a small upward contribution from this category. The largest upward contribution came from the purchase of vehicles, where prices for second-hand cars have risen by 1.4% between September and October 2020, compared with a 0.2% fall between the same two months a year ago. This upward movement continues from last month and is seen by the ONS to be the result of increased demand for used cars as people seek alternatives to public transport.

Downward

Recreation and culture The largest downward contribution came from this category with overall prices unchanged between September and October 2020, compared with an increase of 0.4% between the same two months a year ago. Within this product group, the main downward contributions came from package holidays; audio-visual equipment and related products; and cultural services.

Seemingly with a straight face, the ONS says the fall in package holiday prices ‘is likely to reflect reduced demand for foreign holidays’.

Housing and household services The second-largest downward contribution came from this category, driven by domestic fuel costs. Gas and electricity prices fell by 12.3% and 3.2%, respectively, between September and October 2020, partially reflecting providers’ responses to Ofgem’s revised six-month energy price cap which came into effect from 1 October 2020.

Seven of the twelve broad CPI groups saw an annual inflation increase, while the other five categories posted a decrease. The category with the highest inflation rate remains Communications at 3.3% (down from 3.4%).

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) rose by 0.2% to 1.5%. Goods inflation rose from -0.3% to 0.0%, while services inflation was unchanged at 1.4%.

Producer Price Inflation was -1.4 % on an annual basis, up from -1.7% in September on the output (factory gate) measure. Input price inflation rose to -1.3% from -2.2% year-on-year. The main driver here was, as usual, crude oil prices. 

While there are more articles emerging about the threat to inflation next year, particularly if there is a no-deal finale to the Brexit transition period, these inflation figures should give little immediate concern to the Bank of England. The Old Lady still expects inflation to reach its 2% target in two years’ time, according to the Monetary Policy Committee’s latest statement.

Alongside the Budget in March, the Government and the UK Statistics Authority (UKSA) launched a consultation on the UKSA’s proposal to address the ‘shortcomings’ of the RPI measure of inflation. On 9 November, the Chancellor Rishi Sunak wrote to the Chair of the UKSA Board announcing that the Government and UKSA will publish their response to the consultation on reform to the RPI alongside the Spending Review on 25 November.

Sources:

• ONS: Consumer price inflation, UK: October 2020 - dated 18/11/2020
• HM Treasury: Correspondence: A letter from Rishi Sunak to Sir David Norgrove on the date of the government and UK Statistics Authority’s response to their joint consultation on reform to the Retail Prices Index – dated 9 November 2020.

The borrowing slows down

(AF4, FA7, LP2, RO2) 

Government borrowing was lower than expected in October, but the figures are still setting records

 

On the day that the BBC reported that the Chancellor would be applying a pay freeze in 2021 for all non-NHS public sector workers, the latest Public Sector Finances data were released by the Office for National Statistics (ONS). While they remain deeply in the red, October’s Government borrowing was considerably less than the markets (and the Office for Budget Responsibility (OBR)) had forecast:

• The public sector net borrowing requirement (PSNBR) in October 2020 is estimated to have been £22.3bn, £10.8bn more than a year ago. That makes it the highest ever for October and the sixth-highest borrowing in any month since records started in 1993. Nevertheless, the figure was lower than the markets had expected and £6.4bn less than the OBR’s July Financial Stability Review (FSR) central scenario projection.

• For the first seven months of this financial year, total borrowing amounted to £214.9bn, just £6.4bn above last month’s halfway figure. The £15.7bn difference between the extra borrowing in October and the cumulative borrowing for the year to date is the consequence of a series of revisions made to earlier months’ numbers by the ONS. Newly received tax and expenditure data enabled the ONS to cut its estimate of August borrowing by £5.7bn and that for September by £7.5bn. Smaller changes were made to the rest of 2020. As we frequently say, these variations are a reminder of how first- release numbers need to be treated with caution; adjustments will happen.

Despite the downward revisions, inevitably, the seven-month outturn was the highest borrowing for that period on record. In cash terms it was £169.1bn up on 2019/20, slightly smaller than last month’s gap thanks to that reworking.

• Overall Government debt rose to £2,076.8bn, £276.3bn (15.3%) higher than a year ago. As a percentage of UK GDP, debt fell to 100.8% in October, reflecting a rolling adjustment to the GDP figure.

• The OBR has not produced any commentary on these numbers because it will be publishing its Economic and Financial Outlook on 25 November alongside the Chancellor’s Spending Review announcement.

The OBR’s FSR projection was that borrowing would reach £372bn in 2020/21, a forecast made long enough ago to be almost history (pre second lockdown, extension of the Coronavirus Job Retention Scheme and the Self-Employment Income Support Scheme, etc.) With tax revenues holding up surprisingly well (down 6.3% year to date), the next OBR forecast could paint a better picture than seemed possible a few months ago.

Source: ONS: Public sector finances, UK: October 2020 – dated 20/11/20.