CPI annual inflation rate was a less-than-expected 2.0% in July: but expect it to rise in coming months

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Date: 23^rd August 2021

• CPI annual inflation fell to 2.0% in July, around 2.3% had been expected, compared with June's 2.5%.
• The CPI was flat (MOM) in July 2021, compared with a 0.4% (MOM) rise in July 2020 when the first lockdown restrictions were being relaxed.
• Both producer output prices inflation and producer input prices inflation picked up in July, suggesting some price pressures in the pipeline.
• The ONS reported house prices rose by 4.2% (MOM, seasonally adjusted) in June, ahead of the tapering of the stamp duty holiday, to be 13.2% higher YOY, the highest annual growth rate since November 2004. The stamp duty nil rate threshold (for England and Northern Ireland) was reduced from £500,000 to £250,000 on 1 July and will revert to £125,000 on 1 October.
• The labour market continued to recover. The number of payroll employees (HMRC data) increased by 182,000 in July to 28.86mn, though it remained 201,000 below pre-coronavirus pandemic levels.
• Employment (from the LFS) rose by 95,000 (QOQ) in the three months to June to 32.28mn but was still 329,000 lower YOY.
• The unemployment rate slipped to 4.7% in the three months to June, 0.2 percentage points lower QOQ, but still 0.6 percentage points higher YOY.
• Vacancies rose by 290,000 (QOQ) in the three months to July, to 953,000, a record high (records began in 2001). The existence of increasing vacancies, and various indicators of recruitment difficulties, points to labour market mismatches as the economy recovers.
• The annual earnings growth rate rose to 8.8% for total pay (including bonuses) and 7.4% for regular pay (excluding bonuses) in the three months to June 2021. The ONS said the data were distorted by compositional and base effects. Allowing for the distortions the ONS estimated that the 'underlying' annual earnings growth rate for regular pay was between 3.5% and 4.9%.
• Output per hour (the main measure of labour productivity, 'productivity hours') fell by 0.5% (QOQ) in 2021Q2, as total hours worked rose 5.4% (QOQ), whilst gross value added (GVA) rose by 4.8% (QOQ).
• Retail sales volumes, unexpectedly, fell by 2.5% (MOM) in July, partly reflecting special factors. But they were still 5.8% higher than in pre-pandemic February 2020 and 2.4% higher YOY.
• Public sector net borrowing (PSNB) in July 2021 was £10.4bn, compared with £20.4bn in July 2020, but was still the second highest July borrowing figure since monthly records began in 1993.
• The PSNB for the first four months of FY2021 totalled £78.0bn, £61.6bn less than the equivalent period in FY2020. It also undershot the OBR's implicit forecast (made in March 2021) - by around 25%.
• Public sector net debt (PSND) was £2,216.0bn at end-July 2021 and 98.8% of GDP, the highest ratio since the 99.5% recorded in March 1962. Suffice to say, the debt/GDP ratio is still rising.