Relief for UK buyers as consumer prices drop more than expected

The Office for National Statistics said food prices represented the biggest drag on September’s inflation rate. (Reuters)
Updated 17 October 2018
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Relief for UK buyers as consumer prices drop more than expected

  • Consumer prices rose at an annual rate of 2.4 percent, more than reversing August’s jump to a six-month high of 2.7 percent
  • The figures are likely to reassure Bank of England officials

LONDON: British inflation fell more than expected in September to a three-month low, offering some relief to consumers who have been squeezed financially since the Brexit vote.
Consumer prices rose at an annual rate of 2.4 percent, more than reversing August’s jump to a six-month high of 2.7 percent, the Office for National Statistics said.
That was well below the consensus forecast of 2.6 percent in a Reuters poll of economists.
Sterling fell against the dollar and euro while British government bond prices rose.
The figures are likely to reassure Bank of England officials who forecast in August that inflation would average around 2.5 percent over the July-September quarter.
“Coupled with the gradual up-tick in wages, the slowing rise in prices will deliver a boost to consumers’ real take-home pay packets, which will also be welcome news for retailers,” said Tej Parikh, senior economist at the Institute of Directors.
“The Bank of England will be unruffled by this week’s data releases, and remains unlikely to budge on interest rates as it continues to monitor the impact of Brexit developments.” The BoE expects it will need to raise interest rates gradually in response to rising wages, assuming Britain manages to strike a deal with the European Union to smooth its exit from the bloc.
On Tuesday, the ONS said the basic wages of workers had risen at their fastest pace in nearly a decade over the summer months.
But wage growth of 3.1 percent remains meagre by historical standards when adjusted for inflation.
The BoE expects inflation to drift down but stay just above its 2 percent target in two years’ time as it gradually raises borrowing costs.
Consumer price inflation hit a five-year high of 3.1 percent in November, when the inflationary effect of the pound’s tumble after the Brexit vote in June 2016 reached its peak.
The ONS said food prices, particularly of meat and chocolate, represented the biggest drag on September’s inflation rate.
Ferry prices dropped from a “surprisingly high” summer peak.
Still, there could be more short-term pressure in the pipeline for consumer prices.
For manufacturers, the cost of raw materials — many of them imported — was 10.3 percent higher than in September 2017, up from a revised 9.4 percent in August.
That was a bigger jump than any economist had forecast in the Reuters poll, which anticipated a rise of 9.2 percent.
Manufacturers increased the prices they charged by 3.1 percent compared with 2.9 percent in August, again stronger than all forecasts in the poll, which had pointed to a 2.9 percent increase.
The ONS said house prices in August rose by an annual 3.2 percent across the UK as a whole, the smallest rise since August 2013 and compared with a 3.4 percent increase in July.
Prices in London alone slipped 0.2 percent.


Undersea gas fires Egypt’s regional energy dreams

Updated 18 November 2018
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Undersea gas fires Egypt’s regional energy dreams

  • In the past year, gas has started flowing from four major fields off Egypt’s Mediterranean coast
  • Gas production has now hit 184 million cubic meters a day

CAIRO: Egypt is looking to use its vast, newly tapped undersea gas reserves to establish itself as a key energy exporter and revive its flagging economy.
Encouraged by the discovery of huge natural gas fields in the Mediterranean, Cairo has in recent months signed gas deals with neighboring Israel as well as Cyprus and Greece.
Former oil minister Osama Kamal said Egypt has a “plan to become a regional energy hub.”
In the past year, gas has started flowing from four major fields off Egypt’s Mediterranean coast, including the vast Zohr field, inaugurated with great ceremony by President Abdel Fattah El-Sisi.
Discovered in 2015 by Italian energy giant Eni, Zohr is the biggest gas field so far found in Egyptian waters.
The immediate upshot has been that since September, the Arab world’s most populous country has been able to halt imports of liquified natural gas, which last year cost it some $220 million (190 million euros) per month.
Coming after a financial crisis that pushed Cairo in 2016 to take a $12 billion loan from the International Monetary Fund, the gas has been a lifeline.
Egypt’s budget deficit, which hit 10.9 percent of GDP in the financial year 2016-17, has since fallen to 9.8 percent.
Gas production has now hit 184 million cubic meters a day.
Having met its own needs, Cairo is looking to kickstart exports and extend its regional influence.
It has signed deals to import gas from neighboring countries for liquefaction at installations on its Mediterranean coast, ready for re-export to Europe.
In September, Egypt signed a deal with Cyprus to build a pipeline to pump Cypriot gas hundreds of kilometers to Egypt for processing before being exported to Europe.
That came amid tensions between Egypt and Turkey — which has supported the Muslim Brotherhood, seen by Cairo as a terrorist organization, and has troops in breakaway northern Cyprus.
In February, Egypt, the only Arab state apart from Jordan to have a peace deal with Israel, inked an agreement to import gas from the Jewish state’s Tamar and Leviathan reservoirs.
A US-Israeli consortium leading the development of Israel’s offshore gas reserves in September announced it would buy part of a disused pipeline connecting the Israeli coastal city of Ashkelon with the northern Sinai peninsula.
That would bypass a land pipeline across the Sinai that was repeatedly targeted by jihadists in 2011 and 2012.
The $15-billion deal will see some 64 billion cubic meters of gas pumped in from the Israeli fields over 10 years.
Independent news website Mada Masr reported that Egypt’s General Intelligence Service is the majority shareholder in East Gas, which will earn the largest part of the profits from the import of Israeli gas and its resale to the Egyptian state.
Kamal said he sees “no problem” in that, adding that the agency has held a majority stake in the firm since 2003.
“That guarantees the protection of Egyptian interests,” he said.
Ezzat Abdel Aziz, former president of the Egyptian Atomic Energy Agency, said the projects were “of vital importance for Egypt” and would have direct returns for the Egyptian economy.
They “confirm the strategic importance of Egypt and allow it to take advantage of its location between producing countries in the east and consuming countries of the West,” he said.
The Egyptian state is also hoping to rake in billions of dollars in revenues from petro-chemicals.
Its regional energy ambitions are “not limited to the natural gas sector, but also involve major projects in the petroleum and petrochemical sectors,” said former oil minister Kamal.
Minister of Petroleum and Mineral Resources Tarek El Molla recently announced a deal to expand the Midor refinery in the Egyptian capital to boost its output by some 60 percent.
On top of that, the new Mostorod refinery in northern Cairo is set to produce 4.4 million tons of petroleum products a year after it comes online by next May, according to Ahmed Heikal, president of Egyptian investment firm Citadel Capital.
That alone will save the state $2 billion a year on petrochemical imports, which last year cost it some $5.2 billion.
Egypt is also investing in a processing plant on the Red Sea that could produce some four million tons of petro-products a year — as well as creating 3,000 jobs in a country where unemployment is rife.