- UK inflation surprises on the downside
- But consensus expectations are for it to snap back
- Housing market surge benefits Persimmon
Mixed markets
Conflicting economic data has led to traders sitting on their hands in London this morning with the main indices somewhat mixed. The blue chip FTSE100 is down marginally while mid caps are up by a similar amount. Inflation coming in below expectations in the UK appears to have flummoxed many and left some looking ahead to the US Federal Open Markets Committee meeting this evening. Neil Wilson has more here.
Inflation undershoot
Amid all the talk of runaway inflation, the UK’s CPI reading for the 12 months to July surprised on the downside, coming in at 2 per cent when most economists and commentators had been expecting something more like 2.3 per cent. So now we get a flurry of comments on how this is just a blip and inflation will resume its upwards surge into the Autumn heading for 4 per cent before the year is out. What remains to be seen is whether the predictions of the spike in inflation being transitory come true - this is the key as to whether central banks will have to reign in monetary expansion policies sooner than they had hoped, raising the potential for yet another ‘taper tantrum’ in the markets.
The main culprit for CPI inflation undershooting in July was a fall in prices of shoes and clothing, possibly down to retailers launching into sales over the summer as shoppers returned to high streets across the country. Clothing and footwear prices dipped by 2 per cent across the month. Meanwhile transport was the biggest positive contributor.
Of more concern to some sections of the population though is the reading on the now unloved Retail Price Index which came in at 3.8 per cent and could herald some nasty increases to rail fares in 2022 if the government continues to allow rail companies to use the RPI +1 per cent formula as a guide to rail fare increases. Watch this space commuters.
Meanwhile the Office for National Statistics has released its House Price Index (HPI) for the 12 months to June. While this index always lags the more racy markers which come from the likes of mortgage providers Halifax and Nationwide, its findings were no less eye watering this time around. UK house prices rose on average by 13.2 per cent in the 12 months to June, up from 10 per cent the previous month.
Read more:
Lord Macpherson: "We're all addicted to consumption and housing inflation"
Investors face a rates conundrum
How bond funds are facing the inflation threat
Persimmon purring
Sticking with the housing market, Persimmon (PSN) has issued a bumper set of half year results this morning, which is hardly surprising given the state of the housing market. Comparing with the last ‘normal’ half year period in 2019, Persimmon grew sales by 20 per cent and ended June with forward sales 9 per cent stronger than the same time in 2019.
This translated to profits of £480m from revenues of £1.8bn. The company reported input cost price rises but these have been offset by an increase in average selling prices. Importantly, management said that some input costs already appear to have peaked. Chief executive Dean Finch suggested that the housing market looks like it is returning to some sort of ‘normal’ trading patterns which, pre-pandemic, were often seasonal and are less likely to be distorted by government incentives which have turbo charged the market over the past 12 months.
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