Inflation drops in February and is expected to fall again
UK inflation was down from January’s 1.8 per cent to 1.7 per cent in February, according to the Office for National Statistics.
The main contribution to the decrease in the consumer price index (CPI) came from housing, water, electricity, gas and other fuels, which fell by 0.03 percentage points in February.
The falls in fuels prices was down the drop in oil price last month, linked to the escalating number of coronavirus cases appearing outside of China that sparked concerns about a slowing global economy and less demand for the commodity.
This inflation calculation comes prior to the oil price war between Saudi Arabia and Russia which triggered major falls in March, with oil trading at $34 a barrel at one point, less than half of the January prices.
This means that inflation will fall further in March as the lower oil prices is taken into account, according to Laura Suter, personal finance analyst at investment platform AJ Bell.
She added: “However, the reaction to the coronavirus crisis means that there are so many factors feeding into inflation figures in the next month. A rise in food and drink costs as a result of stockpiling and shortages is likely to filter through and provide upward inflationary pressure, in addition to the plummeting pound increasing the cost of any imports and so pushing up prices. However, competing against that is the slump in air travel, hotel bookings, restaurant use and in non-essential retail shopping.
“What’s more, the impact of government and central bank intervention depends on the exact scale of the final bill for the government – we’re certainly not at the end of the giveaways and funding from [chancellor] Rishi Sunak. This week alone there is expected to be more help for the self-employed, and it’s anyone’s guess what additional funding is around the corner. Until we know the final bill for the government spending and how it’s constructed, it’s hard to tell the impact on the economy in future and on inflation in the short-term.”
Eve Maddock-Jones, Trustnet Reporter
Wed 25 Mar 2020 11:05
“You get these kind of mega-rallies when the market is heading lower”
Neil Wilson, chief market analyst at Markets.com, said: “Stock markets rose this morning. To be a little more descriptive, it’s a sea of green on the boards with investors lapping up the $2tn stimulus package finally agreed by the United States Congress last night. Ahead of this the Dow Jones surged over 11 per cent, notching its best day since 1933. The Dax in Germany also climbed 11 per cent higher to breach the 9,200 resistance. The FTSE 100 climbed 9 per cent. Japan’s Nikkei rose 8 per cent.
“This morning shows more progress for equity markets although gains are more modest as it looks like the market found bid chiefly on expectations of the deal – buy the rumour, buy the fact more carefully at this point. The FTSE 100 rallied again through last Friday’s peak at 5,428. The next step forward is to the previous Friday’s peaks at 5,700.
“There have been growing signs of stabilisation. The kind of bear market bounce yesterday was rather against the narrative, but nonetheless pulls us further off the lows. You get these kind of mega-rallies when the market is heading lower. Therefore, as I keep saying, I’d prefer to see smaller daily swings to believe that stabilisation, or even a market bottom, has been established. The stimulus is now by and large in place, the question is whether it’s enough for the markets or whether the expected spike in cases and deaths in the US and Europe, combined with the emerging picture of the economic damage, means we need to take another leg lower before the bottom is found.”
FTSE follows US and Asian markets higher on $1.8trn US stimulus package
The FTSE 100 has opened higher this morning as investors welcome the news that the US has agreed a massive stimulus package to tackle coronavirus.
As at 08:24 on Wednesday, the FTSE had gained 1.45 per cent to reach 5,525 points. This followed a strong session on the previous day when the index gained 9 per cent.
European markets have also risen in early trading.
Overnight, the Dow Jones rose 11.37 per cent and the S&P 500 added 9.38 per cent, while Japan’s Nikkei 225 was up 8.04 per cent.
News that the president Donald Trump and the US Senate have agreed an economic relief package worth more than $1.8trn (£1.5trn) to deal with the impact of the coronavirus crisis has cheered investors.
The deal follows five days of negotiations and includes plans to bail out industries that have been affected by the pandemic. The full details have not yet been published.