Charities urge government not to ‘fiddle’ benefits increase after inflation hits two-year low – business live

Storm clouds are gathering over Europe’s economy, with the European Commission cutting its forecasts for eurozone growth this year.

In its latest forecasts, the EC lowered its forecast for growth in the eurozone in 2023 to 0.6%, down from the 0.8% expected in September.

The EC warned that the European economy has lost momentum this year, amid the cost of living squeeze, weak external demand and rising interest rates.

It says:

Following a robust expansion throughout most of 2022, real GDP contracted towards year-end and barely grew in the first three quarters of 2023.

Still high, though declining, inflation, and tightening monetary policy took a heavier toll than previously expected, alongside weak external demand.

The latest business indicators and survey data for October point to subdued economic activity also in the fourth quarter of this year, amid increased uncertainty.

Overall, the Autumn Forecast projects GDP growth in 2023 at 0.6% in both the EU and the euro area, 0.2 percentage points below the Commission’s summer forecast.

Growth across the European Union for 2024 has been downgraded too, to 1.3% from 1.4% forecast in the summer.

The EC also expects Germany’s economy will shrink by 0.3% this year, before returning to growth in 2024.

And inflation in the eurozone is expected to keep falling, having peaked at 10.6% a year ago.

Headline inflation in the euro area is projected to fall from 5.6% in 2023 to 3.2% in 2024 and 2.2% in 2025.

Campaigners have warned the Government it would be “indefensible” to use today’s lower inflation figures to uprate benefits next spring.

As flagged earlier (see post), the Treasury is rumoured to be considering using October’s CPI increase of 4.6% as the benchmark to raise working age benefits in April 2024, rather than September’s higher inflation reading of 6.7%.

That could cut £2bn off the UK’s benefits bill, according to Bloomberg, freeing up resources for potential tax cuts before the next election.

Charities Action for Children and the Joseph Rowntree Foundation (JRF) have both warned against using today’s inflation figure, and say the Treasury should stick with using September’s CPI.

JRF chief analyst, Peter Matejic, said many families “live in a world where their income, in many cases, simply doesn’t cover costs, while the Government talks about cutting their support further”.

Matejic added:

“It’s indefensible that the Government is reportedly considering cutting the benefits of struggling families worried for their future, with news stories suggesting it plans to use today’s figures, instead of last month’s, to fiddle the figures and hide a big cut.

“In the upcoming autumn statement benefits must be increased in line with inflation and Local Housing Allowance (LHA) must be unfrozen to support private renters with their housing costs.

“The Chancellor should also take steps to ensure that Universal Credit, at a minimum, always enables people to afford the essentials.”

Action for Children’s chief executive, Paul Carberry, warned that the cost of living crisis “is getting worse for many of the families we see every day”, even though inflation has slowed.

Carberry added:

“With winter approaching, the continued financial pressures on low-income parents will only get worse, meaning yet more children going cold and hungry.

“The Chancellor must use the autumn statement to protect families with children from these intense and ongoing pressures on household finances. At the very least, he must raise benefits by inflation in the usual way using the September figure and reform Cost of Living Payments to account for family size.”

Treasury minister Gareth Davies has been quizzed about this issue this morning.

Davies told ITV’s Good Morning Britain:

“I am not going to speculate what may or may not be in the autumn statement.

“But I would point out that we did uprate benefits by quite some considerable margin earlier this year. But it’s not appropriate for me to comment ahead of the autumn statement.

Pub chain Fuller, Smith & Turner says it’s looking forward to a “strong Christmas”, after reporting a jump in sales and profits.

Fullers has reported that like for like sales in the last 32 weeks are up 11.7%, and that bookings for Christmas are 11% higher than a year ago.

Its pretax profits rose to £14.9m in the six months to the end of September, up from £10.7m a year ago. Food sales grew 15.5%, while drink sales are up 10.9%.

Shares in Fullers are up 7.3%.

Chief executive Simon Emeny told shareholders:

“We have had a strong start to the year – delivering excellent financial results and building a superb platform for future growth. While there are still a number of macro-economic elements to navigate, certain external factors are moving in our favour with office workers continuing to return to their desks and the City becoming a seven day operation with increased leisure spend at the weekend.

“There has been a welcome return of major events. Customers are increasingly seeking premium experiences when they are spending their money, and we have the benefit of the lucrative international tourist trade to come with inbound tourism still below pre-covid levels.

In the energy sector, supplier SSE has announced it will grow its investment in clean energy to over £20bn.

The move comes as SSE reports better than expected profits for the first half of the financial year.

My colleague Jillian Ambrose explains:

The FTSE 100 utility told investors it will add an extra £2.5bn to its spending plan for the five years to the 2023-2024 financial year, most of which will be used to invest in renewable energy and upgrading the UK’s energy grids.

SSE’s chief executive, Alistair Phillips-Davies, said the company was prepared to accelerate its green ambitions because it has increased confidence in its future earnings.

The Perth-based company reported pre-tax profits of £565.2m for the first half of the year, up by 1% from the same months last year. SSE set out plans earlier this year to invest £40bn in clean energy over the next 10 years after almost doubling its full-year annual profits compared with the year before.

Full story: UK inflation drops sharply to 4.6% as energy prices fall

Phillip Inman

If you’re just tuning in….the UK’s annual inflation rate has fallen sharply to 4.6% in October on the back of cheaper gas and electricity in the biggest drop for more than three decades.

Marking the steepest single month decline in the consumer prices index (CPI) since 1992, the fall from 6.7% in September also beat the 4.8% figure predicted by a poll of economists for Reuters.

The decline does not mean prices are going down, only that they are rising less rapidly. Nevertheless, it is expected to ease fears that the Bank of England will increase interest rates again this year, despite being more than twice its 2% target.

It also means Rishi Sunak has achieved his target set in January of halving inflation by the end of the year from the 10.7% average in the last quarter of 2022. The prime minister said:

“In January I made halving inflation this year my top priority … Today, we have delivered on that pledge.”

More here.

Newsflash: UK house prices dipped slightly in September, year-on-year, for the first time in over a decade.

The ONS reports that the average UK house price dropped 0.1% in the 12 months to September, to £291,385.

That’s down from £292,882 in August, and the first annual drop in house prices on the ONS’s data since April 2012.

The ONS’s latest house price report shows:

• Average house prices over the 12 months to September 2023 decreased in England to £310,000 (negative 0.5%), decreased in Wales to £215,000 (negative 2.7%), but increased in Scotland to £195,000 (2.5%).

• Average house prices increased by 2.1% to £180,000 in the year to Quarter 3 (July to Sept) 2023 in Northern Ireland.

• The North East saw the highest annual percentage change of all English regions in the 12 months to September 2023 (1.6%), while the South West saw the lowest (negative 1.6%).

This 0.1% drop is a significantly smaller fall than UK mortgage lenders have reported.

Halifax said prices fell by 4.7% in the year to September, while Nationwide reported a fall of 5.3%.

However, the ONS’s data also includes cash buyers, rather than just those taking out a mortgage.

Newsflash: UK rents have jumped again, as tenants continue to be squeezed.

The private rental prices paid by tenants in the UK rose by 6.1% in the 12 months to October, new data just released by the Office for National Statistics shows.

That’s up from 5.7% in the 12 months to September 2023, and the highest rate since the ONS started calculating this data in January 2016.

The ONS adds:

• Annual private rental prices increased by 6.0% in England, 6.9% in Wales, and 6.2% in Scotland in the 12 months to October 2023.

• Within England, London had the highest annual percentage change in private rental prices in the 12 months to October 2023 at 6.8%, while the North East saw the lowest at 4.7%.

• London’s annual percentage change in private rental prices was at its highest annual rate since the London data series began in January 2006.

Today’s inflation report bolsters expectations that the Bank of England will start cutting interest rates in May, say Morgan Stanley.

Bruna Skarica, UK economist at Morgan Stanley, told clients:

As we had expected, October brought another leg lower in core goods inflation, as used cars prices collapsed. But services inflation – and all the core metrics we track – were soft as well. The economy is weak, and firms’ pricing is waning.

On top of all this came sizeable base effects from energy. The UK no longer looks like such a major outlier when it comes to inflation. We see the print as supportive of our call of BoE cuts next year, from May.

Morgan Stanley predicted a May rate cut earlier this week. And more investors now agree, with the money markets now pricing in a rate cut, from 5.25% to 5%, next spring.

Britain’s stock market is rallying this morning, as traders welcome signs that the inflation shock is easing on both sides of the Atlantic.

The FTSE 100 index has gained 85 points, or 1.1%, to a one-month high of 7,525 points.

That follows strong gains on Wall Street last night, where investors cheered the drop in US inflation to just 3.2% last month.

That weakened the dollar, sending the pound surging yesterday by over two cents to $1.25, a two-month high.

Sterling has weakened this morning, though, it’s down a third of a cent at $1.246. That shows that traders are less concerned that the Bank of England could raise interest rates further to fight inflation.