BUSINESS LIVE: Inflation slows to 6.8% in July

Aarin Chiekrie, equity analyst at Hargreaves Lansdown:

‘It’s been a robust start to the financial year for infrastructure giant Balfour Beatty.

‘Revenues came in higher as HS2 volumes stepped up in the UK and activity increased at airport projects in Hong Kong.

‘But the current high-interest rate environment is causing delays in some projects going to contract, mainly in the US commercial office sector, as customers wait for economic stability – driving a decline in the group’s order book over the first half.

‘Despite this, the order book’s still sitting at a healthy £16.4bn, which gives plenty of visibility in the short to medium term.

‘But it’s worth keeping in mind that even in the good times margins in the construction sector are pitifully thin. That’s why it’s encouraging to see the operating profit margin begin to creep back up towards 2% over the first half.

‘Such low margins leave little room for error, but Balfour reiterated its expectation that full-year profits are likely to land in line with 2022 levels.’

Inflation eased again last month as Brits were given some respite from relentless cost-of-living pressures.

The headline CPI measure was 6.8 per cent in July, down from the 7.9 per cent recorded in June and the lowest since February last year.

Chancellor Jeremy Hunt hailed the drop as evidence the government’s plan is working, while warning ‘we’re not at the finish line’.

Harrods profits surpassed pre-pandemic levels last year as the department store bounced back.

The company, famed for its Knightsbridge store in London, reported profits of £135.8million for the year to January 28, 2023.

This compared with the £20.7million pocketed the previous year and also slightly higher than 2019-20 levels of £130.5million.

Giles Coghlan, chief market analyst at HYCM:

‘In theory, rising GDP and falling inflation figures should be good news for the UK economy – in reality, however, other indicators show that the UK’s inflation fever shows no signs of breaking soon.

‘Although the headline rate of inflation has declined to 6.8%, the latest data suggests that strong wage growth is likely to keep inflation elevated – not to mention more persistent – in the coming months.

‘The Chancellor has already forewarned that wage growth and an uptick in clothing prices could see inflation rebounding again in August, tempering any optimism that today’s release may produce.

‘With next month’s expected rise in [interest rates] hanging over today’s release like a dark cloud, the markets are still pricing in one or two further quarter point rises from the Bank of England, which could mean more pain for mortgage-holders and first-time buyers in the months to come.

‘The market reaction to strong GDP data last week was relatively muted, and as rate expectations gradually ease, this scenario is likely to weigh on sterling.’

David Baker, partner at Mazars comments:

‘The surprise strength of CPI suggests that higher inflation in the UK may be becoming endemic as companies are enjoying an environment where input prices can be passed through to consumers, and low unemployment strengthens the hand of employees in the face of higher debt servicing costs.

‘Industrial action in the public sector is proving effective and has emboldened trade unions, whilst the private sector is submitting to higher wages to avoid having to recruit from a tight labour market.

‘This latter example of labour hoarding is a feature of companies being pragmatic in an economy where the labour force growth has levelled off over recent years due to the pandemic and a smaller pool of migrant labour.

‘We see this a delicately balanced dynamic which is currently in favour of labour, but which could turn quickly in the event of slowing economic activity.’

Jason Hollands, managing director at investing platform Bestinvest:

‘This is encouraging progress and will undoubtedly be touted by the Government as evidence that their fiscal prudence is working in conjunction with impact of higher interest rates set by the Bank of England.

‘However, inflation still has some way to go before it returns to the Bank of England’s long-term target rate of 2%, so the fight against inflation is not yet over.

‘The resilience of the UK economy and the latest wage growth data released yesterday, which saw nominal salaries rise by a record 7.8% – and total wages including bonuses, climb to 8.2% – is a double-edged sword.

‘While many will applaud evidence – given today’s inflation reading – that earnings are starting to grow in real terms, Bank of England rate setters will be fretting that core inflation is so stubborn and higher earnings could start to revive inflationary headwinds, signalling the need for further interest rate hikes – beyond those already expected.’

Consumer price inflation slowed to 6.8 per cent in July, in line with forecasts, though persistently high core inflation looks set to maintain pressure on the Bank of England ahead of its next rate setting meeting.

Core inflation – which strips out volatile food and energy prices – remained at 6.9 per cent for the month, flat versus the June reading, and higher than forecasts of 6.8 per cent.