UK inflation flatlines

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Good evening.

Inflation is still proving to be a more persistent problem in the UK than its peers, with new data today showing the annual rate stuck at 6.7 per cent in September, keeping pressure on the Bank of England to hold to its mission of reining in price growth.

Downward trends in food and drink were balanced by upwards pressure from higher petrol prices which, with the spectre of a widening conflict in the Middle East, could prove to be a longer-term problem. The core measure, excluding energy and food, edged down from 6.2 per cent to 6.1 per cent.

Today’s data follow stats yesterday suggesting labour market pressures were easing a little. Average total pay over the three months to August was down from 8.5 to 8.1 per cent and excluding bonuses was down from 7.9 per cent to 7.8 per cent. 

Although pay has now been growing faster than prices for several months, other cost of living pressures remain. New data this morning showed residential rents rising at the fastest rate since records began.

The IMF says the UK will have the highest inflation in the G7 this year, a worry for prime minister Rishi Sunak, who has made halving the rate by the end of the year one of his key policy targets. Bank of England governor Andrew Bailey said last week that the last mile in getting inflation back to target would be the “hardest” but analysts believe a prolonged period of unchanged interest rates was more likely than another increase when the BoE makes its next move in early November.

The new data will also be studied carefully by chancellor Jeremy Hunt as he prepares his update on the public finances in the Autumn Statement on November 22. Surging debt interest payments and sluggish growth have left him with little room for pre-election tax cuts.

As for the Bank of England, Chris Giles in his new Central Banks newsletter (for Premium subscribers) points out that its failure to keep control of prices, alongside its forecasts of phantom recessions and other gaffes, has only worsened its image with the British public.

To its credit, the BoE has accepted that it has lessons to learn and called for help from Ben Bernanke, former chair of the US Federal Reserve, turned interviewer of FT economics commentators.

If you’re an FT Premium subscriber, you can sign up here to get Chris Giles on Central Banks sent straight to your inbox every Tuesday.

Need to know: UK and Europe economy

Yannis Stournaras, the governor of Greece’s central bank, told the FT that the situation in the Middle East was creating new challenges for Europe’s economy, shifting the balance against any further tightening of monetary policy.

Germany lifted its objections to French subsidies for nuclear power, unblocking a long-stalled reform of the EU electricity market. France’s largely state-owned nuclear plants generate about 70 per cent of its electricity. Brussels has backtracked on its pledge to increase its emissions target after objections from Poland, Hungary and Italy.

Final results in the Polish election confirmed exit polls that showed Donald Tusk on track to form a coalition government. His Civic Platform is set to share power with two parties that performed better than expected: the Third Way alliance of centrist and agrarian parties that won 65 seats and the leftist Lewica, which got 26.

Need to know: Global economy

China’s president Xi Jinping met his Russian counterpart Vladimir Putin in Beijing as the countries reaffirmed the partnership which has grown closer since the Ukraine war began. Xi told Putin annual bilateral trade between their countries had reached a “historic high” of nearly $200bn.

China is expected to attend next month’s UK summit on the governance of AI. Security chiefs in the US, UK, Canada, Australia and New Zealand urged the world to step up efforts to shield innovation from “unprecedented” Chinese spying.

Better than expected US retail sales yesterday reinvigorated concerns over “higher for longer” interest rates, sending short-term Treasury yields to their highest level in 17 years.

Mexico is reviving a century-old railway in a $2.8bn bid to steal container traffic away from the Panama Canal. The 308km Tehuantepec isthmus corridor will run between Salina Cruz and Coatzacoalcos with proximity to the US and a transit time of 6.5 hours excluding loading time — less than the eight to 10 hours it takes on the 80km canal.

Why is Argentina tilting towards a radical populist as president? A new Big Read assesses the appeal of Javier Milei ahead of Sunday’s election. The FT editorial board said the country needed hard reforms, not the illusory answers of populism.

Need to know: business

Nvidia and iPhone maker Foxconn said they would build “artificial intelligence factories” together as the Taiwanese electronics manufacturer seeks to diversify its business. The news follows a tightening of US export controls on high-end AI chips, limiting the ability of Nvidia and other manufacturers to sell them to China.

Drug gangs have infiltrated shipping supply chains to an “extreme” degree, warned an executive at Danish group Maersk. Brussels has unveiled plans to crack down on illegal drugs flooding into Europe’s ports after a surge in cocaine shipments.

Engineering company Rolls-Royce is to cut up to 2,500 jobs as part of a global restructuring to streamline its operations and boost returns.

Businesses around the world are stepping up their use of specialist consultancies, former diplomats and politicians for advice as geopolitical tensions rise.

Whatever happened to the metaverse? Early investor interest seems to have cooled, so where’s the virtual world heading? The FT’s Hannah Murphy explains.

The World of Work

What’s the point of meetings? Isabel Berwick speaks to Kaz Nejatian, the COO of the ecommerce giant Shopify, a company that last year put in place policies that force employees to meet less. How did they do it and how is it going? Listen to the new Working It podcast.

Legal challenges to affirmative action in the US focus on race, but there are signs that gender equality programmes could be affected. Read more in our special report: Women in Business.

Some good news

US scientists are nearing a solution to out-of-control itches, potentially changing how doctors treat conditions from eczema to allergies.