Closing summary
Stock markets are falling on both sides of the Atlantic. The FTSE 100 index in London has lost 0.7%, or 64 points, to 8,703 while the German and French markets fell by more than 1%.
On Wall Street, shares are trading about 0.3% lower across the Nasdaq, Dow Jones and S&P 500 indices.
Glencore is still the biggest faller on the FTSE 100 index, after it reported a fall in underlying profits in 2024 for the second year in a row, and blamed lower commodity prices, despite a rise in commodities trading.
The Swiss-based miner and commodities trader said it is considering ditching its primary listing in the UK in favour of New York or another location where it can “get the right valuation”. This would deal another big blow to the London Stock Exchange, which has been hit by a string of high profile departures.
Glencore has been listed in London since 2011, when the company was valued at about £37bn – at the time the largest-ever float on the London Stock Exchange. The listing made Nagle’s predecesssor, Ivan Glasenberg, one of Europe’s richest men, with a paper fortune of nearly £6bn. The company became known as a “millionaire factory”.
Last year, 88 companies delisted from the London Stock Exchange or moved their primary listing from its main market. Just 18 listed during 2024.
UK inflation accelerated faster than expected at the start of this year, eating into workers’ wages and reducing the chance of an interest rate cut next month.
The consumer prices index (CPI) measure rose to 3% in January, the Office for National Statistics reported, up from 2.5% in December.
City economists had expected a smaller increase in January’s inflation rate, to 2.8%.
The ONS said a jump in the cost of meat, bread and cereals pushed up food bills, while higher private school fees after the government’s withdrawal of a VAT exemption increased the cost of education services.
Airline tickets fell in price in January, but not by as much as usual, and combined with a rise in fuel costs, pushed up the annual rate of inflation in the transport sector to its highest level since February 2023.
Our other main stories today:
Thank you for reading. We’ll be back tomorrow. Cheerio! – JK
US electric carmaker Nikola files for chapter 11 bankruptcy protection
The scandal-hit US electric vehicle maker Nikola – once a rising star on Wall Street – has filed for Chapter 11 bankruptcy protection after warning that it could run out of cash.
Its share price tumbled by 41% on the news.
Nikola filed for protection in the United States Bankruptcy Court for the District of Delaware, and said today that it has also filed a motion seeking approval to pursue an auction and sale of the business.
The company has about $47m in cash. Nikola plans to to continue to provide limited service and support for vehicles on the road, including fuelling operations through the end of March, subject to court approval. The company said that it will need to raise more funding to support those operations after that time.
Chief executive Steve Girsky said the group had tried to raise more money and preserve cash but that hasn’t been enough.
Like other companies in the electric vehicle industry, we have faced various market and macroeconomic factors that have impacted our ability to operate.
The board has determined that Chapter 11 represents the best possible path forward under the circumstances for the company and its stakeholders.
The company’s founder former executive chairman Trevor Milton was convicted in 2022 for misleading investors about its technology. In December 2023, he was sentenced to four years in prison after being convicted of exaggerating claims about his company’s production of zero-emission 18-wheel trucks, leading to sizeable losses for investors.
Milton resigned in 2020 amid reports of fraud that sent Nikola’s share price into a tailspin, and investors suffered heavy losses.
At his trial, prosecutors said a company video of a prototype truck appearing to be driven down a desert highway had actually rolled down.
Federal prosecutors in Manhattan said Milton misled investors by stating that Nikola had built a pickup from the “ground up”, that it had developed its own batteries even though he knew it was buying them, and that it had early success creating a “Nikola One” semi-truck that he knew did not work.
Thomas Ryan, North America economist at Capital Economics, has looked at the US figures.
The decline in housing starts in January is not a major concern, as it comes after a surge in starts in December and appears partly driven by the unseasonably harsh weather. Encouragingly, permit issuance remained solid, reinforcing our view that starts will grind higher in the first half of the year, before Trump’s tariff and immigration policies take effect, eroding developers’ ability and willingness to build and causing starts to drop back.
The 9.8% month-on-month fall in seasonally adjusted housing starts in January only partially reversed the 16.1% m/m jump in December, taking them to 1.37m annualised, from 1.52m. That still leaves starts slightly above their average from last year and broadly in line with our year-end forecast.
The main driver was a 91,000 decline in single-family starts, with starts in the volatile multi-family segment down by 58,000. The polar vortex that hit the eastern half of the country appears to have contributed to the fall, as starts in those regions fell, while they edged up in the West which was unaffected. Likewise, permit issuance inched up showing that builders remain confident to start new projects.
US housing starts fall more than expected, permits rise
Single-family homebuilding in the United States fell sharply in January as snowstorms and freezing temperatures disrupted construction, with a rebound likely to be limited by higher costs from tariffs on imports and elevated mortgage rates.
The number of single-family homes, which account for the bulk of homebuilding, started last month dropped by 8.4% to 993,000 units, according to the US Commerce Department’s Census Bureau. Data for December was revised higher to show homebuilding increasing to a rate of 1.084m units from the previously reported pace of 1.050m units.
Overall, housing starts fell by 9.8% to 1.366m homes from 1.515m the month before, which was worse than expected.
Snowstorms swept across large parts of the country in January, which also impacted retail sales and the labour market last month.
While residential construction remains supported by a shortage of previously owned houses for sale, a protectionist trade policy being pursued by Donald Trump’s administration could make it challenging for builders to break ground on new housing projects.
After taking office on 20 January, Trump lost no time and slapped a fresh 10% tariff on imported goods from China. A 25% levy on imports from Mexico and Canada has been paused until March. Tariffs on steel and aluminium imports have been raised to 25% and Trump has tasked his team to formulate plans for reciprocal tariffs on every country that taxes US imports.
A survey on Tuesday showed the National Association of Home Builders/Wells Fargo Housing Market Index tumbled to a five-month low in February, a decline that was blamed on tariffs.
The survey noted that “with 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs.”
More pressures are coming from high mortgage rates. The average rate on the popular 30-year fixed-rate mortgage is hovering just under 7%.
Higher mortgage rates and house prices have made it harder for people to buy a home, leading to a glut of new homes, with inventory at levels last seen in late 2007.
Permits for future construction of single-family housing were unchanged at a rate of 996,000 units in January.
Here’s some reaction.
Fund manager Mario Cavaggioni said:
US:
— Mario Cavaggioni (@CavaggioniMario) February 19, 2025
Housing Starts m/m -9.8% (est -7.3%, last +16.1% from +15.8%)
Building Permits m/m +0.1% (est -1.5%, last -0.7%)
Building Permits surprised on upside..... positive for newly private housing units... pic.twitter.com/mI9icjk8JA
Spencer Hakimian, founder of Tolou Capital Management, said:
*US JAN. HOUSING STARTS FALL 9.8% M/M; EST. -7.3%
— Spencer Hakimian (@SpencerHakimian) February 19, 2025
*US JAN. HOUSING STARTS 1.366M; EST. 1.390M
Zero housing activity going on.
We should be in a recession right now, but that’s not possible at 8% deficits to GDP.
So housing is paying the costs.
Home prices only going up…
Britain’s biggest weapons manufacturer BAE Systems has reported record orders as the European defence industry gears up for increased spending sparked by the Ukraine war.
The company, a member of the FTSE 100 share index, said that it expected sales next year to top £30bn, as it reported annual profits before interest and tax of more than £3bn for the first time in 2024.
Weapons companies have benefited from a rush of spending in the three years since Russia invaded Ukraine, and they are gearing up for further increases as Europe and the UK, which is reviewing defence spending, scramble to adjust to Donald Trump’s signals that the US will withdraw much of its support.
The US was the key military backer of Ukraine’s resistance until Donald Trump’s return to the White House. However, Trump blamed Ukraine for the war on Tuesday, and his administration held talks this week with Russia that excluded Ukraine, the EU and the UK.
Charles Woodburn, the chief executive of BAE Systems, said the company was “waiting for some clarity” about the extent of European defence spending increases but “given what’s happening, it’s going to be higher than it is today”.
KFC, the fast food chain previously known as Kentucky Fried Chicken, has come in for some heat after announcing plans to move its corporate headquarters from the state after which it is named to Texas.
The chain’s parent company, Yum! Brands, told investors it would move about 100 employees from its office in Louisville, Kentucky, more than 800 miles south-west to the city of Plano in Texas, where the group’s Pizza Hut chain is headquartered.
The employees are expected to move in the next six months and will receive relocation support. An extra 90 remote workers will be expected to move to Texas or other Yum! Brands’ corporate offices during the coming 18 months.
The governor of Kentucky, Andy Beshear, said in statement:
I am disappointed by this decision and believe the company’s founder would be, too.
This company’s name starts with Kentucky, and it has marketed our state’s heritage and culture in the sale of its product.
Here’s our analysis on the jump in UK inflation to 3% in January:
Andrew Bailey had warned there would be a bump in the road. But after inflation jumped by more than expected to 3% in January, the Bank of England governor could be in for a rockier ride than anticipated.
For the chancellor, Rachel Reeves, too, it will be a tough road to travel, having promised to achieve economic growth that can be “felt in people’s pockets” – amid the accusation Labour is leaving those pockets feeling lighter, not heavier.
A few years ago, Bailey and his peers in the US and the eurozone were burned by predicting the period of high inflation coming out of the Covid pandemic would be “transitory”, only to see living costs continue to accelerate amid a succession of economic shocks.
It is a debacle that could have worrying parallels this time around. While Threadneedle Street has warned that inflation could hit a fresh peak of 3.7% later this year, it reckoned this would prove temporary, as it kept the door open to further interest rate cuts.
Some City investors say this is wishful thinking. Despite all the warnings, including from the central bank, the economy grew in the final quarter of last year, while pay growth accelerated and unemployment remained low. Although growth remains sluggish, inflationary pressures are bubbling under the surface.
Given the Bank’s recent experience of calling things wrong, it would be an uncharacteristically bold move to cut borrowing costs while headline inflation is so far above its 2% target rate.
Updated
Also yesterday, Donald Trump stood firm against warnings that his threatened trade war risks derailing the US economy, claiming his administration could hit foreign cars with tariffs of around 25% within weeks.
Semiconductor chips and drugs are set to face higher duties, Trump told reporters at a news conference on Tuesday.
The White House has repeatedly raised the threat of tariffs since Trump returned to office last month, pledging to rebalance the global economic order in America’s favor.
A string of announced tariffs have yet to be introduced, however, as economists and business urge the Trump administration to reconsider.
Duties on imports from Canada and Mexico have been repeatedly delayed; modified levies on steel and aluminum, announced last week, will not be enforced until next month; and a wave of so-called “reciprocal” tariffs, also trailed last week, will not kick in before April.
Tariffs are taxes on foreign goods. They are paid by the importer of the product – in this case, companies and consumers based inside the US – rather than the exporter, elsewhere in the world.
Asked on Tuesday if he had decided the rate of a threatened tariff on cars from overseas, Trump said he would “probably” announce that on 2 April, “but it’ll be in the neighborhood of 25%”.
Upon being asked the same question about threatened tariffs on semiconductors and pharmaceuticals, Trump replied: “It’ll be 25% and higher, and it’ll go very substantially higher over the course of a year.”
The ramp-up, he explained, was designed to lure manufacturers to the US. “When they come into the United States, and they have their plant or factory here, there is no tariff.”
Updated
China condemns Trump's 'tariff shocks' at WTO; US hits back
China has condemned new US tariffs, launched or threatened by Donald Trump, at a World Trade Organization meeting, saying such “tariff shocks” could upend the global trading system – but the US was quick to hit back.
Trump has announced sweeping 10% tariffs on all Chinese imports, prompting Beijing to respond with retaliatory tariffs and to file a WTO dispute against Washington.
China’s ambassador to the WTO, Li Chenggang, said at a closed-door meeting of the global trade body on Tuesday, according to a statement sent to Reuters:
These ‘Tariff Shocks’ heighten economic uncertainty, disrupt global trade, and risk domestic inflation, market distortion, or even global recession.
Worse, the US unilateralism threatens to upend the rules-based multilateral trading system.
US envoy David Bisbee took the floor in response, calling China’s economy a “predatory non-market economic system”.
It is now more than two decades since China joined the WTO, and it is clear that China has not lived up to the bargain that it struck with WTO Members when it acceded. During this period, China has produced a long record of violating, disregarding, and evading WTO rules.
Only a handful of other states joined the debate, according to two trade sources who attended the meeting, Reuters reported. Some of them expressed deep concern that tariffs pose a risk to the stability of the global trading system while others criticised China for alleged market distortions.
WTO Director-General Ngozi Okonjo-Iweala also addressed the room and called for calm.
The WTO was created precisely to manage times like these - to provide a space for dialogue, prevent conflicts from spiralling, and support an open, predictable trading environment.
The WTO meeting, which began late on Tuesday and continues today, is the first time that mounting trade frictions were formally addressed on the agenda of the watchdog’s top decision-making body, the general council.
Updated
HSBC is delaying key parts of its climate goals by 20 years, while watering down environmental targets in a new long-term bonus plan for its chief executive, Georges Elhedery, that could be worth up to 600% of his salary.
The London-headquartered lender said it had launched a formal review of its net zero emissions policies and targets – which are split between its own operations and those of the clients it finances – after realising its clients and suppliers had “seen more challenges” in cutting their carbon footprint than expected.
HSBC had planned to hit net zero targets for its own operations – arguably a much easier goal than cutting the emissions of its loan portfolio and client base – by 2030. However, those plans, which were set in 2020, are now being pushed out by two decades to 2050.
“Progress in reducing emissions in the … supply chain component is proving slower than we anticipated,” HSBC’s annual report said. “We currently expect a 40% emissions reduction across our operations, travel and supply chain by 2030 which would mean that we would need to rely heavily on carbon offsets to achieve net zero in our supply chain by 2030.
“As such, we have revisited our ambition, taking into account latest best practice on carbon offsets. We are now focused on achieving net zero in our operations, travel and supply chain by 2050.”
HSBC is also proposing to water down environmental targets in Elhedery’s new pay package, including a long-term incentive plan (LTI) worth up to £9m, or 600% of the his base salary. It is part of a wider pay proposal that will give Elhedery a chance to earn up to £15m a year, up 43% from his current potential pay of up to £10.5m.
The environmental portion of the LTI, a bonus that will cover performance from 2025-2027, has been reduced to 20% from 25%. HSBC said this would “ensure a greater proportion of the LTI is aligned to value creation while supporting our ESG (environmental, sustainability and governance) ambitions”.
Meanwhile, the LTI will only be linked to progress made in cutting the bank’s own emissions – including those that have been delayed – given that tracking progress of its client base was “difficult”.
The campaign group Generation Rent said the rest of the UK should follow the Scottish government’s example, which is proposing to introduce a cap on rents.
The group noted that a recent report by Zoopla found that rents for new lets are £270 per month higher than three years ago, adding £3,240 (27%) to the annual cost of renting since 2021.
Meanwhile, the Joseph Rowntree Foundation’s 2024 UK poverty report found more than a third of private renters were in poverty after housing costs.
Responding to the latest figures from the ONS, deputy chief executive of Generation Rent, Dan Wilson Craw, said:
Everyone needs a safe, secure and affordable home. But renters across the UK are facing soaring rents which are far outstripping our earnings.
When we are forced to spend too much of our income on rent, the effects ripple across the rest of our lives. It means children are going to school hungry, and older renters can’t afford to turn the heating on. High rents are trapping people in poverty.
It’s encouraging to see the Scottish Government proposing to introduce rent caps. We now need to see a similar approach across the rest of the UK to urgently slam the brakes on rising rents and give people the breathing space we need.
UK house prices rise by 4.6% in 2024, rents up by 8.7%
House prices in the UK increased by 4.6% year-on-year in 2024, according to the Office for National Statistics.
This compares with 3.9% house price inflation in November.
Rents paid by tenants to private sector landlords rose by 8.7% in January, down from December’s 9% increase, but remained high.
Average UK house prices increased by 4.6%, to £268,000 in the year to Dec 2024, this annual growth was up from 3.9% in the 12 months to Nov2024.
— Office for National Statistics (ONS) (@ONS) February 19, 2025
Average UK private rents increased by 8.7% in the year to Jan 2025, this is down from 9.0% in Dec2024.
➡️ https://t.co/AGSBU7JXaG pic.twitter.com/KQ7RANjOPL
Updated
Glencore is the biggest loser on the FTSE 100 index this morning, with the shares down 6.5% at 330.55p, after it said lower commodity prices weighed on profits last year.
Underlying profits fell by 16% to $14.36bn in 2024, from $17.1 bn last year, in line with analysts’ forecasts. Glencore traded 3.7m barrels per day (bpd) of crude oil, oil products and gas products last year, compared with 3.3m bpd in 2023.
Last year marked the second consecutive year of lower profit for Glencore, following two record years with soaring metals’ prices.
Even so, the Swiss-based miner and commodity trader is returning $2.2bn to shareholders via share buybacks, to be completed before its half-year results on 6 August. This means shareholders will get 18 cents a share this year, compared with 13 cents last year. This should boost the share price going forward.
The shares lost 25% of their value in 2024, more than other diversified miners – BHP and Rio Tinto’s London-list shares lost 21% and 19% respectively, while Anglo American’s shares climbed by 20%.
Last year, the London Stock Exchange suffered its largest exodus since the 2009 financial crisis. According to its own data, 88 companies delisted or transferred their primary listing from London’s main market in 2024, and only 18 came onto the market.
They included Ashtead, the £27bn construction rental company which announced plans to shift its primary listing to New York in December.
Companies such as takeaway giant Just Eat, the Paddy Power owner, Flutter, and Europe’s biggest travel operator, Tui, also said they intended switch their primary listings away from London to rival hubs such as New York and Frankfurt.
Meanwhile, London has lost out on blockbuster IPOs including that of the UK chip designer Arm, which opted to list on Wall Street in August 2023. The buy now, pay later company Klarna has followed suit.
Glencore considers ditching UK stock market listing
Commodities trader Glencore is considering ditching its primary listing in the UK in favour of New York or another location where it can “get the right valuation”.
This would deal another big blow to the London Stock Exchange, which has been hit by a string of high profile departures.
Chief executive Gary Nagle said the company was assessing whether other exchanges were “better suited to trade our securities”. He told journalists:
Ultimately, what we want to ensure is that our securities are traded on the right exchange where we can get the right and optimal valuation for our stock. There have been questions raised previously around whether London is the right exchange.
If there’s a better one, and those include the likes of the New York stock exchange, we have to consider that.
Updated
While UK inflation has hit 3%, interest rate cuts are still on track, says Philip Shaw, chief economist at Investec.
Today’s headline figures are above the 2.8% which the Bank of England had pencilled into its forecasts in its Monetary Policy Report earlier this month. We gain some comfort though that neither core nor services inflation exceeded our expectations, as this points towards inflation strengthening due to ‘volatile’ or one-off items.
Indeed what matters is not so much the precise peak in inflation, but the length of time it subsequently takes to subside towards the 2.0% target.
What the MPC will pay particular attention to is evidence on whether increases in inflation are feeding through to wage deals, which would risk entrenching inflation into the medium-term. To our minds a weak economy is likely to result in a further loosening in labour market conditions, helping to push wage growth down, enabling the committee to cut rates ‘gradually and carefully’ through the course of this year, as its guidance suggests.
Jet2 sees only 'modest' price increases
Travel firm Jet2 said its prices remain “keen” for travellers heading on trips between April and June, as it continues adjusting to a trend for later booking, as customers wait to buy their tickets.
The Leeds-based company - which flies to European destinations from 12 UK airports and is due to start departures from Luton in April - said “pricing remains keen” for its package holidays which had only a “modest average increase” since a year earlier, while it had only “slightly” raised the price of its flights.
It came as the company forecast it would report a group profit before tax and foreign exchange revaluation between £560m - £570m for the 12 months to the end of March this year, representing an 8% to 10% increase on a year earlier.
Jet2 said it was facing higher costs related to inflation, especially for hotels, aircraft maintenance and airport and air traffic control charges. However it added that government changes to the national living wage and national insurance threshold would also push up its wage costs.
Jet2’s chief executive, Steve Heapy, said the firm recognised the economic environment and
the many demands placed on consumer discretionary incomes, which combined with the later booking profile and cost headwinds details, may mean profit margins in the year ahead come under some pressure.
Updated
The EY Item Club forecasting group said January’s hotter inflation largely reflected one-off factors. It cautioned that inflation is likely to remain elevated throughout 2025 due to higher energy prices, the effect of weaker sterling on imported goods prices, and companies passing on some of the rise in labour costs to consumers.
However, these factors are probably temporary, and the EY Item Club still expects the Bank of England to stick with its gradual approach to loosening policy, with the next rate cut coming in May.
Matt Swannell, chief economic advisor to the EY Item Club, explained
Though inflation will likely dip over the next couple of months, we expect a renewed pickup from April. The energy price cap is set to rise by more than 6% in April, so the energy category is expected to provide upward pressure to headline inflation from the spring. Having only made a partial recovery since the turn of the year, weaker sterling should push up prices in import-intensive categories such as food and core goods. Meanwhile, businesses are likely to pass on some of the rise in labour costs caused by the increases in employers’ National Insurance Contributions (NICs) and the national living wage.
January’s higher reading for services inflation was widely anticipated, and it’s unlikely the MPC [monetary policy committee] will have seen much in today’s release to concern them. We expect the MPC will continue with its ‘cut-hold’ approach to loosening policy for now, with the next rate cut likely to come at its May meeting.
Janet Mui, head of market analysis at the wealth manager RBC Brewin Dolphin, noted that the Bank of England had factored in higher inflation, and that weak price pressures in areas like clothing and household goods could be symptoms of cautious discretionary spending.
Today’s inflation data and yesterday’s wage data highlight the persistence of price pressures in the UK. The Bank of England has already pencilled in a reacceleration in inflation this year, so this should not come as a surprise to policymakers. At the margin, it is a reminder for the Bank to proceed with caution in terms of rate cuts…
It is hard to justify a rate cut in March when services CPI is 5% and wage growth is 6% year on year, while GDP and employment data have been better than thought as of late. The policy direction will be driven by the Monetary Policy Committee’s judgement between averting growth risks versus containing inflation.
For now, the priority is inflation. But things may change throughout the year as business surveys are overwhelmingly negative. Market reaction is relatively muted and bond traders continue to price in about two more rate cuts by the end of 2025.
In food, seven of the 11 food and non-alcoholic drinks categories contributed to the jump in UK inflation to 3% last month, the ONS said.
Balwinder Dhoot, director of industry growth and sustainability at the Food and Drink Federation, said food prices are likely to rise further in coming months, partly due to the impact of higher labour costs on companies. He explained:
Whilst food and drink manufacturers continue to work hard to keep costs down for consumers, we saw food and drink price inflation surge to 3.3% in the first month of 2025, up from 2.0% in December 2024. Rising energy and water bills as well as higher commodity prices, like dairy and cocoa, are all having an impact on production costs.
Unfortunately, this month isn’t likely to be a flash in the pan for rising food and drink prices. We’re yet to see the full impact of increasing labour costs, with changes to both National Minimum Wage and National Insurance Contributions coming into force in April, and we expect to see this filter through to shoppers over the coming year. We urge government to work with industry to simplify regulation and bring business costs down to help protect consumers from rising prices.
Let’s look at transport costs in more detail.
Overall transport prices rose by 1.7% in the year to January. Air fares fell by 19% between December and January, less than the near-39% drop a year earlier, the ONS said.
Turning to fuel, the average price of petrol rose by 0.8 pence a litre between December and January to 137.1p, versus 139.9p a litre in January last year. Diesel prices rose by 1.5p a litre to 144.1p a litre, down from 148.3p a litre in January 2024. This meant overall motor fuel prices fell by 2.2% compared with a 5% decline a year earlier.
Prices of secondhand cars fell by 0.4% last month, compared with a monthly rise of 1.5% a year earlier.
March rate cut looks even more unlikely, economists say
Chances of an interest rate cut next month have receded further. Financial markets now see a 17% chance of a reduction then, down from 24% before the jump in inflation was revealed by the UK statistics office.
Markets are still expecting two more rate cuts by the end of the year.
The pound briefly spiked after the data, but it now up just 0.06% at $1.2617 against the dollar.
Monica George Michail, associate economist at the think tank National Institute of Economic and Social Research, said on X:
⚡️Our reaction to the latest #CPI inflation figures is out now⚡️📈@MichailMonica @RoyalEconSoc pic.twitter.com/MH9fzINkNI
— National Institute of Economic and Social Research (@NIESRorg) February 19, 2025
Updated
Inflation will probably rise further to around 3.5% in the second half of this year, said Ruth Gregory, deputy chief UK economist at the consultancy Capital Economics.
We doubt this will prevent the Bank of England from cutting interest rates further. But it will mean it continues to cut rates only slowly.
Admittedly, the rebound in CPI inflation was a bit stronger than we and the Bank had anticipated. But the increase was driven by components that shouldn’t have too much of an effect on the MPC’s stance on monetary policy [air fares]…
And services inflation rose from 4.4% to 5.0% (Bank of England forecast: 5.2%). So domestic pressures do not appear stronger than the Bank had anticipated.
It’s no secret that higher energy prices will push CPI inflation further above 3% over the next 7 months. We doubt this will prevent the Bank from cutting rates further. Indeed, we still think CPI inflation will fall below 2% in 2026 as the fading of some temporary effects and the weak economy feed through to lower services inflation. The risk is that the rise in inflation proves more persistent and rates are cut more slowly than we expect, or not as far.
Inflation in services – closely watched by the Bank of England – rose to an annual rate of 5% in January, up from 4.4% in December, but less than expected. Goods inflation rose to 1% from 0.7%.
Luke Bartholomew, deputy chief economist at abrdn, said:
Inflation was always going to jump higher today, but the size of the increase is a bit of disappointment. However, measures of underlying inflation were actually a bit more encouraging, with services inflation coming in slightly weaker than expected.
While key Bank of England policymakers recently sounded more concerned about the growth rather than inflation outlook, there is probably not enough in this report to materially move the dial on the near term outlook for policy.
Another rate cut in March looks pretty unlikely, with the Bank continuing with its gradual pace of easing for now. But any speeding up of the pace of rate cuts in the second half of the year will depend on inflation pressures heading back towards 2%.
Updated
Introduction: Transport, food costs and private school fees push UK inflation up to 3%
Good morning, and welcome to our rolling coverage of economics, the financial markets and the world economy.
Inflation in the UK accelerated more than expected last month due to higher transport and food costs, as well as a jump in private school fees.
The latest data, just released by the Office for National Statistics, shows that the consumer prices index (CPI) measure of inflation rose to 3% in the 12 months to January, up from 2.5% in December. Economists had expected inflation to climb to 2.8% in January.
On a monthly basis, CPI fell by 0.1% in January, compared with a 0.6% fall in January 2024.
Transport costs rose at the fastest annual rate since February 2023 because of air fares and fuel prices, which both fell by less than last year, partially offset by a downward effect from secondhand cars.
Air fares tend to rise into December and fall into January. However, this time this pattern was less pronounced than in previous years, the ONS said.
Commenting on today’s inflation figures for January 2025, ONS Chief Economist Grant Fitzner said: (Quote 1 of 2) 💬 pic.twitter.com/yAyP1D5OwL
— Office for National Statistics (ONS) (@ONS) February 19, 2025
Food prices rose by 3.3% in January, up from 2% in December. Meat, bread and cereals, fish, milk, cheese and eggs, chocolate, coffee and tea and juice all became dearer.
Private school fees were another factor, where prices rose by 12.7% on the month but did not change a year ago, after the government decided to impose VAT of 20% on private school fees.
Grant Fitzner added: (Quote 2 of 2) 💬 pic.twitter.com/5XekrK0TcL
— Office for National Statistics (ONS) (@ONS) February 19, 2025
The chancellor, Rachel Reeves, said:
Getting more money in people’s pockets is my number one mission. Since the election we’ve seen year on year wages after inflation growing at their fastest rate in three years – worth an extra £1,000 a year on average – but I know that millions of families are still struggling to make ends meet.
That’s why we’re going further and faster to deliver economic growth. By taking on the blockers to get Britain building again, investing to rebuild our roads, rail and energy infrastructure and ripping up unnecessary regulation, we will kickstart growth, secure well paid jobs and get more pounds in pockets.
The core rate of inflation, which strips out volatile food and energy costs, climbed to 3.7% from 3.2%.
Consumer Price Index (CPI) rose by 3.0% in the 12 months to January 2025, up from 2.5% in December 2024.
— Office for National Statistics (ONS) (@ONS) February 19, 2025
Read the full article ➡️ https://t.co/qSPpfIkqF9 pic.twitter.com/MTp1HLq0jS
Here is our first take:
The Agenda
1.30pm GMT: US Housing starts for January
7pm GMT: US minutes of last Federal Reserve meeting
Updated
