Market report: Food inflation falls in the UK, insolvency concerns rise and the World Bank warns on oil prices
- Food price inflation falls in the UK, offering relief for shoppers and leading to expectations that the pause button will be pressed on interest rate hikes.
- Insolvency rates expected to jump again, as the number of firms experiencing critical financial distress jumps by a quarter.
- Brent crude hovers around $86 a barrel but the World Bank warns it could jump to $150 if the Middle East conflict widens.
- China’s manufacturing data disappoints, highlighting the nation’s continued economic fragility.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Relief about the prospects for inflation is rippling through, as the rate of food price rises falls in the UK and oil beds in lower, but it’s being offset by renewed concerns about China’s economic fragility.
Food inflation has dipped again for the sixth month in a row according to the data from NielsenIQ and the British Retail Consortium, to reach 8.8% – a level not seen in a year. Groceries are still getting more expensive, but more slowly, which is taking the edge off the panic shoppers have been feeling at the tills. This is also more palatable for Bank of England policymakers, who will decide about the direction of interest rates on Thursday. Expectations are rising that the pause button on interest rates will be hit again, helped by oil prices largely cementing yesterday’s losses. As hopes that violence in the Middle East can be contained, supply worries have retreated. Policymakers will be mindful of the pressure already being piled on companies though sky-high interest rates and elevated costs. The number of firms in a state of critical financial distress has jumped by 25% in the last quarter according to Begbies Traynor. The official insolvency rates out later are expected to reflect this dire situation. The trend of companies in financial difficulties and being forced to fold is at a level not seen since the great financial crisis. So, the Bank’s Monetary Policy committee will be highly mindful about not piling on more pressure, with the UK economy only just crawling ahead.
We are still very much in ‘wait and see’ mode and a cautious mood is set to prevail.. Although the World Bank says it expects global oil prices to average $90 a barrel this quarter, it has warned that if the violence in Israel and Gaza erupts into a wider conflict, drawing in other countries, then prices could jump as high as $150 a barrel. This wouldn’t just be felt by drivers at the pumps but would send the costs of transportation and energy bills shooting up again, potentially pushing food price inflation back up.
For now, concerns about global growth are still front and centre, helping keep a lid on energy prices, given demand is expected to be lower, as economies splutter or are forecast to struggle to hang onto momentum. China’s fragility has been exposed in the latest manufacturing data, with the NBS PMI figures indicating that new factory orders are shrinking, and sales overseas are falling at a faster pace than expected. While the real estate sector’s woes haven’t been cured, and property prices have fallen, it has cast a shadow over consumer sentiment about how wealthy they are, leading to cautious spending patterns, while demand in overseas markets hit by the cost-of-living crisis continues to be weighed down.”
