The Guardian-China falls back into deflation territory UK energy companies pay 108m for missing smart meter targets business live

The recovery in the travel sector has boosted sales and profits at retail group WH Smith.

Sales have jumped by more than a quarter over the past year, while profits almost doubled, as WH Smiths benefitted from a higher numbers of travellers at airports and train stations.

The worst may be over in the UK housing market, according to the latest poll of surveyors across the country.

The RICS Residential Property Monitor, released this morning, shows that demand and sales continued to fall in October. There was another drop in new buyers entering the market, and in sales, although both falls were less severe than in the summer.

Near-term sales expectations point to activity remaining subdued over the coming months, says RICS.

And prices continued to fall, although “the pace of decline appears to be leveling off”, RICS says.

Surveyors polled by RICS expect house prices to have fallen further in three months time, and in a year.

Sentiment on prices for the year ahead is most negative across the East Midlands, West Midlands and Yorkshire & the Humber.

RICS senior economist, Tarrant Parsons, says:

“Plenty of caution remains evident with respect to both buyer and seller activity across the UK housing market, albeit the latest survey feedback points to a slightly less negative picture than that reported over the previous few months.

“Although base interest rates have now been kept on hold at each of the past two MPC meetings, the Bank of England was keen to emphasise that monetary policy is set to stay at a restrictive setting for quite some time yet.

“As such, mortgage affordability will remain stretched over the near-term, leaving little prospect of a strong rebound in residential sales volumes, even if expectations have now moved away from cyclical lows”.

Emma Fildes, property agent at Brickweaver, has posted more details and analysis:

UK housebuilder Taylor Wimpey has lifted its profit expectations too, despite warning of “significant market uncertainty”.

Taylor Wimpey now expects its operating profit to be at the top end of its guidance range of £440m to £470m.

It says:

The market continues to be impacted by weak consumer confidence influenced by high mortgage rates and cost of living pressures which are negatively affecting affordability for our customers.

Taylor Wimpey reports that in the second half of this year, its net private sales rate per outlet per week has been 0.51, the same as in 2022, with a cancellation rate of 21% (down from 24% a year ago).

Cut-price retailer B&M has lifted its profit forecast, after seeing strong trading in recent weeks.

B&M says it has made a “pleasing” start to the Golden Quarter – the final three months of the year, when Christmas shopping traditionally boosts the retail sector.

B&M says sales have grown by 1.6%, year-on-year, in the first six weeks of the Golden Quarter, and by 4.5% in the last three weeks.

The company has also reported a 10.4% increase in revenues in the 26 weeks to 23 September 2023 (the first half of its financial year), with pre-tax profits up 10.5% to £222m.

B&M says the “uncertain and ever-changing” economic background makes forecasting difficult.

But, given “the strong first half results and positive momentum” it now expects to make adjusted EBITDA profits of £620m to £630m, up from £573m last year.

China’s fall into deflation last month is the latest data to confirm anaemic economic conditions in the country, says Kyle Rodda, senior financial market analyst at Capital.com.

The cause of the malaise is a subject of robust debate. Still, most agree it’s some combination of a confidence crisis, a cyclical slowdown, and structural problems related to pockets of leverage in the economy.

While policymakers have avoided the bazooka-style stimulus that drove China’s economy out of the 2008 slump and 2015 asset bubble, recent tweaks to monetary policy and a pledge of more profound deficit spending to achieve growth targets signal intent to boost economic activity. So far, the impacts have only been modest.

The insensitivity to policy support may throw wait behind the “balance sheet recession” argument for why China is stuck in such stagnation, a la the Japanese experience in the late 20th century.

Goldman Sachs have predicted that China’s headline CPI should rise gradually in the coming months, although “persistent pork prices deflation is likely to slow the pace”.

Bruce Pang, chief economist for Greater China at Jones Lang LaSalle, warned that “combating persistent disinflation amid weak demand remains a challenge for Chinese policymakers,” adding:

“An appropriate policy mix and more supportive measure are needed to prevent the economy from a downward drift in inflation expectations that could threaten business confidence and household spending.”

Newsflash: Britain’s energy regulator has fined six suppliers a total of £10.8m for missing their targets for smart meter installation last year.

British Gas, OVO, Bulb, E.ON, Scottish Power and SSE all missed their rollout targets, leading to a shortfall of 1,026,628 smart meters, Ofgem has announced.

The suppliers have all agreed to make payments into Ofgem’s Energy Industry Voluntary Redress Fund (EIVRF) – which is used to provide help to consumers in vulnerable situations who are most at risk from cold homes and high energy bills.

Cathryn Scott, director of Enforcement and Emerging Issues at Ofgem, said:

“The installation of smart meters is a vital step in the modernisation of our energy system and the path to net zero by 2050. Smart meters give customers better information about their energy usage helping them budget and control their costs.”

Some suppliers did cite “mitigating factors” for missing their targets, some of which Ofgem considered when setting their payments into the EIVRF, but didn’t hold a detailed review into what went wrong.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

China has dropped into deflationary territory for the second time this year, reigniting concerns over its economy.

Consumer prices in the world’s second-largest economy fell by 0.2%, compared with the previous year, in October, a larger decline than the 0.1% expected.

Chinese producers also cut their prices at a faster rate. The producer price index (a measure of prices at the factory gate) fell 2.6% year-on-year, following a 2.5% drop in September. That could push inflationary pressures down globally.

The drop in China’s CPI was partly due to cheaper food prices – pork, for example, cost 30% less than a year ago, with an oversupply of pigs and weak demand making this popular staple cheaper.

But there was also a notable slowdown in core inflation (stripping out food and energy), which fell to 0.6% in October from 0.8% in September.

While cheaper goods and services are welcome news for Chinese consumers, the fall in prices will worry Beijing, as it suggests economic demand remains weak almost a year after pandemic restrictions were ended.

Back in August, China’s inflation rate fell below zero, before returning to positive territory in October.

Deflation is a serious situation – falling price levels lead to a rapid slowdown in economic activity as consumers cut spending and business invest less (on the logical grounds that it will be cheaper next year).

However, is a small drop in prices actually full-blown inflation?

Robert Carnell, ING’s regional head of research for the Asia-Pacific, argues that China is actually grappling with “low underlying inflation”.

Carnell says:

What China has right now, is a low rate of underlying inflation, which reflects the fact that domestic demand is fairly weak. What today’s data show is that it doesn’t take much of a negative shock from one of the components to push a low underlying headline inflation rate below zero on a year-on-year basis.

If you want to use any term, “disinflation” would be my preference, but what we are seeing today is mainly the result of a supply excess, rather than a collapse in demand.

Carnell adds that the inflation report highlights the “hog cycle” – when pork prices are high, farmers hold back pigs from the market to expand their herds, leading to a glut, causing herd shrinkage, etc etc.

He says:

China is not experiencing “deflation” as most headlines attest. But its pork prices are undoubtedly much lower, good news for all except farmers probably

The agenda

• 8.10am GMT: European Central Bank chief economist Philip Lane speaks at the ECB Conference on Money Markets 2023 in Frankfurt, Germany

• 9am GMT: ECB economic bulletin released

• 11am GMT: Ireland’s consumer price inflation data released

• 1.30pm GMT: US weekly jobless report