A down day for equities, with European markets mostly finishing lower. After edging towards another closing high, the FTSE 100 finally ended in the red despite a dip in the pound. Sterling suffered on continuing Brexit fears and following dovish comments from members of the Bank of England’s monetary policy committee. Elsewhere the main markets took a breather although Spain bucked the trend, with the Ibex recovering from its recent weakness in the wake of the row over Catalan independence. The final scores showed:

• The FTSE 100 finished down 10.80 points or 0.14% at 7516.17
  
• Germany’s Dax dipped 0.07% to 12,995.06
• France’s Cac closed down 0.03% at 5361.37
• Italy’s FTSE MIB fell 0.4% to 22,337.78
• Spain’s Ibex ended up 0.35% at 10,216.8
• In Greece, the Athens market lost 0.51% to 761.82

On Wall Street the Dow Jones Industrial Average, having briefly moved above 23,000, is currently up 0.09% at 22,976.

On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.

The Dow Jones Industrial Average has crossed 23,000 for the first time, as the surge in stock markets continues. The move comes not long after it breached the 22,000 barrier on 2 August.

Time for a quick recap.

Britain’s inflation rate has hit a new five-year high, taking another bite out of wages and bringing more pain for those relying on government benefits.

The Consumer Prices Index rose by 3.0% in the 12 months to September, the highest level since early 2012. Food and transport costs were important factors behind the rise, which economists are blaming on the weak pound driving up import costs.

The figures mean that the state pension is on track to rise by 3% next year, under the ‘triple-lock’ policy.

It also means that real wages have continued to fall -- average earnings only rose by 2.1% in the three months to July; new labour market figures due tomorrow are unlikely to show much improvement.

Bank of England governor Mark Carney predicted that inflation will probably rise higher in the next couple of months, before dipping back.

Testifying to the Treasury committee, Carney warned that European states have not done as much work as the UK on the possibility of Britain leaving the EU without a deal.

He also told MPs that firms are losing confidence that Brexit will proceed smoothly to a new trading arrangement.

Carney also argued forcefully that a transition period, of at least two years, would help resolve issues such as Britain’s massive derivatives market.

The rise in inflation could spur the Bank of England to raise interest rates next month. But some City experts warn that this would harm the economy, and do little to bring down import prices.

Lukman Otunuga, Research Analyst at FXTM, says Mark Carney et al have a difficult decision:

This has been a tricky year for the central bank, especially when considering how elevated inflation levels have squeezed household spending - impacting the outlook for the economy. With inflation leaving average earnings in the dust, consumers are feeling the pinch and as such, it threatens the sustainability of Britain’s consumer-driven growth.

While the argument for higher rates is to put a lid on inflation, this may end up punishing the fragile UK economy.

Union leaders have urged the government to raise public sector wages, which would help nurses, teachers, police officers et al to handle inflation.

Liberal Democrat Leader Vince Cable agrees, saying:

“The Brexit squeeze caused by the falling pound is getting worse, and it is hitting the poorest families hardest.

“This above-target inflation is increasing the cost of the weekly shop and cutting into people’s living standards.

“The Chancellor must end the benefits freeze that is set to leave millions of families hundreds of pounds poorer a year.

Above all, the government must change course from a destructive Brexit that would damage living standards and push up prices further.”

And finally, governor Carney is asked about the Bank of England’s gender pay gap.

He says Bank is planning to publish details next month. But he’s happy to give some top lines now. Namely...

• The median gender pay gap is 24%
  
• The mean pay gap is 21%.
  
• But, on an equal work for equal pay assessment, there is no gender pay gap.
  

The gaps exists because there are more men at the top of the Bank than lower down the ranks, who are paid more.

Carney insists the Bank is committed to improving diversity. He cites ‘blind’ recruitment panels, spreading the recruitment net beyond economists, hiring from 40 universities (up from just 10).

If you start from a position of being almost exclusively a white male institution, you need to have a deliberate strategy of movement.

In the end, the Bank expects to be in the “middle of the pack” for the financial services industry on gender, but near the top for the public sector.

And that’s the end of the session.

Breaking away from Mark Carney (and inflation), the Treasury has slapped down the OECD after it suggested that Britain could stay in the European Union.

The Paris-based think tank argued this morning that Britain’s economy would get a boost if it chose not to follow through with Brexit.

In its annual assessment of the UK, the OECD predicted that growth would slow in 2018 year and business investment fall.

It also warned that a hard Brexit would “would hurt trading relationships and reduce long-term growth”.

But there would be a “significant” boost if the Brexit vote was reversed, perhaps through a second referendum, it suggested.

In response, the Treasury has insisted that the public won’t get a chance to change last June’s referendum result:

‘We are working to achieve the best deal with the EU that protects jobs and the economy. We aim to agree a Free Trade Agreement that is comprehensive and ambitious. Our £23 billion National Productivity Investment Fund which will improve our country’s infrastructure, increase research and development and build more houses.

We are leaving the EU and there will not be a second referendum.’

The OECD’s report was presented to the press in London this morning, but chancellor Philip Hammond didn’t hang around long enough to take questions....

Q: How have businesses and consumers’ attitude to Brexit changed?

Mark Carney indicates that UK firms have become “less confident about a smooth transition” and less confident about the end state of Brexit.

Households are less worried, he says,

At present, household expectations are broadly consistent with a smooth outcome to a future arrangement.

But consumer confidence has fallen, partly due to lower real incomes (due to rising inflation).

Carney adds that financial markets are the most concerned - they have already priced in a significant adjustment to the UK’s future prospects, and they may have to ‘mark up’ the UK’s future performance [if Brexit goes better than some fear].

The Treasury committee are probing Mark Carney about how the trillions worth of derivatives contracts between the UK and other EU country members will be handled after Brexit.

Mark Carney says this cannot be resolved if Britain crashes out without a deal.

Q: Is a two-year transition period enough to resolve this problem?

Carney says that the best solution would be legislation that would “grandfather those contracts”, so that they could continue to be honoured after Brexit.

He also cites cross-border insurance (European companies and individuals who have taken out insurance from UK entities) and cross-border data concerns.

And...he repeats his argument that a hard Brexit would hurt Europe more than the UK on these issues.

There’s more data that is relevant to the EU in the UK than vice versa...

These issues are bigger for Europe than they are for us, but they’re material for us.

Carney is asked about concerns that some banks aren’t ready for Britain’s departure from the EU in 2019.

He replies that European-based institutions have done much less preparation than UK banks for the possibility of a hard exit from the EU without any transition deal.

So we’re doing all those preparations for that. There has been much less of that done in the European Union, including by the member firms.

Q: Are you concerned that the UK’s net international investment position has been revised down by £490bn (as reported by the Daily Telegraph yesterday)?

Carney says that the stock of UK assets, as opposed to the flows, is quite healthy.

He points out that Britain still owns a lot of assets in the rest of the world (but not as much as previously thought). And the fall in the pound actually improves that position.

The UK owes a lot in sterling, and owns a lot in foreign currency assets.

With the depreciation [of the pound] you get a positive move.

Carney also warns that the “sustainable level” for Britain’s current account deficit (which is running a hefty deficit) will ultimately depend on the future trade relationship with Europe.

Mark Carney, governor of the Bank of England, is testifying to the Treasury Committee now.

It’s being streamed live, here.

Q: Inflation has risen to 3% - only 0.1% away from the level when you must write a letter to the chancellor explaining why you have missed your target. Do you expect to write a letter soon?

Carney says it is “more likely than not” that he will write to Philip Hammond in the next few months to explain why inflation is more than one percentage point away from 2%.

He says the fall in the pound since the Brexit vote means inflation is likely to rise over 3% “in the coming weeks”.

He reminds the committee that the Bank of England signalled prior to the referendum that the pound would be hit by a vote to leave the EU.

We expected sterling to fall sharply. It did. That passes through to prices....

The sole reason that inflation has gone up as much as it has is the depreciation of sterling.

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Here’s our economics editor, Larry Elliott, on today’s inflation report:

Britain’s pensioners will receive a 3% increase in their state income next year after the annual inflation rate reached its highest level since early 2012 last month.

The 12-month increase in the cost of living as measured by the consumer prices index (CPI) edged up from 2.9% to 3% - in line with recent Bank of England forecasts.

Any further increase would force Mark Carney, the governor of the Bank of England, to write a letter to the chancellor, Philip Hammond explaining why inflation was not being kept to its 2% target. The City expects the Bank’s monetary policy committee to raise interest rates next month for the first time in more than a decade.

Inflation has risen from 1% to 3% over the past year, largely due to the fall in the value of the pound, which has made imports dearer.

The Office for National Statistics said the cost of fuel and raw materials for industry were up by 8.4% on a year ago compared with a 7.6% increase in the 12 months to August. It said more expensive food and a smaller fall in air fares than a year ago were the main factors explaining higher inflation, although clothes had come down in price.

The pick-up in inflation means the state pension will rise by at least 3% next year because the so-called triple lock means it rises by the September inflation rate, the September increase in annual earnings or 2.5%. Annual earnings are currently rising by just over 2%.

More here:

The well-respected Institute for Fiscal Studies makes in important point.

The rise in inflation means the government’s policy of freezing benefits is causing more pain than anticipated.

Paul Johnson, head of the IFS, says the whole policy is discredited.

Could Philip Hammond make changes in next month’s budget? It’s possible, but the problem is that letting benefits rise in line with inflation would cost money. And the chancellor doesn’t have much of a war chest to play with...

In other news, UK house price inflation has picked up -- but not in London.

Average house prices in the UK rose by 5.0% in the year to August 2017, up from 4.5% in July 2017.

However, prices in the capital actually fell during the month, and are only 2.4% higher than a year ago.

That might help some younger people to get onto the housing market (although the average London house price is still £484,000).

Richard Snook, senior economist at PwC, points out that prices in the financial district have taken a serious knock.

The uncertainty over Brexit may be felt more keenly in London than other areas due to the importance of international businesses.

Figures from the City of London borough bear this out where prices are down 18.4% compared to a year ago.

Newsflash: The Bank of England’s newest deputy governor has revealed that he isn’t one of the policymakers who believe interest rates need to rise soon.

Sir Dave Ramsden has told the Treasury Committee that he wasn’t among the majority at last month’s meeting who said that they were close to voting for a hike.

Instead, Ramsden took the view that the UK economy was ready for higher borrowing costs.

The majority of MPC members saw a case for removing some of the monetary stimulus in the coming months. I wasn’t in that majority.

This was my first ever MPC member as a voter. I wasn’t in a position where I was part of that majority that thought - the way the degree of slack was diminishing, the way trade off between slack and higher inflation was disappearing - was sufficient to give that signal.

It’s clear that the slump in the pound after last year’s EU referendum is the main factor driving UK inflation up.

These charts show how the cost of goods has spiked over the last year. Britain is a net importer of actual stuff, so a weaker pound means it’s simply more expensive to bring raw materials and finished products into the country.

In contrast, the eurozone’s inflation rate was just 1.5% in September, meaning most Europeans should be enjoying real wage rises.

Open Britain, the campaign group against a Hard Brexit, argues that Britain can’t afford to lose full access to the Single Market.

Nick Dixon, investment director at Aegon, fears that the pound could suffer fresh losses if Britain and Brussels don’t achieve progress in the Brexit taslks.

While there are signs of a slowing economy, with sterling still at risk as Brexit negotiations remain inconclusive the British economy remains vulnerable to further inflationary forces.

The Treasury has responded to today’s inflation figures, arguing that the government is helping where it can...

“We understand that families are feeling the effects of inflation and we are helping them with their living costs. We’ve frozen fuel duty, doubled free childcare for nearly 400,000 working parents and cut income tax for 30 million people.

Increases to the National Living Wage are also delivering the fastest pay rise for the lowest paid in 20 years.”.

The Resolution Foundation points out that UK welfare benefits are NOT rising in line with inflation (unlike pensions...).

This means that the poorest in our communities will find it even harder to get by next year, even if they are in work.

Britain’s pensioners are the big winners from today’s inflation report, thanks to the triple-lock that guarantees that their pensions won’t lag behind prices.

So argues Maike Currie, investment director for personal investing at Fidelity International.

She writes:

“Life is getting much more expensive with an increase in the cost of food, fuel and a last-minute price spike in flights all contributing to the rise in inflation. Meanwhile, our pay packets have stagnated with wage growth falling behind inflation, despite UK unemployment being at a record low.

“It’s also worth noting that September’s inflation figure matters hugely to both retirees and savers. Under the government’s ‘triple lock’ guarantee, the state pension will rise in April each year by whichever number is the highest out of the September CPI inflation number, average earnings or 2.5%. With inflation running higher than either wages or 2.5%, this will be determine the rise in the State Pension next year, arguably making retirees the biggest winners from today’s inflation figure.

This is one of the most depressing charts in UK economics today -- showing how UK workers’ pay packets are shrinking in real terms.

As you can see, its the second wage squeeze in a decade.

The rate of 2.6% for recreation and culture is the highest since January 2010, whilst the rate of 3.1% for food and non-alcoholic beverages is the highest since October 2013....

Housing and household services costs were the biggest single factor driving the cost of living up, the ONS adds, partly due to utility bills.

Breaking! Britain’s inflation rate has hit a new five and a half-year high.

The consumer prices index jumped by 3.0% in September, up from August’s 2.9%. That’s the highest reading since early 2012.

This means that British workers are still suffering a pay squeeze, as average wages only rose by 2.1% per year in the three months to July.

But I think it’s better news for pensioners, who can look forward to a 3% increase in the basic state pension next April. Under the triple-lock system, pensions rise in line with earnings growth, September’s CPI reading, or by 2.5%, whichever number is biggest.

More to follow!

Sterling is inching higher this morning, as City traders anticipate UK inflation hitting its highest levels since 2012.

The pound has gained almost half a eurocent against the euro, to €1.2175. It’s also up a more modest 0.1% against the US dollar, at $1.3263.

Connor Campbell of SpreadEx explains:

Despite last night’s meeting between Theresa May and Jean Claude Juncker (and David Davis and Michel Barnier) producing nothing more than vague promise to ‘accelerate’ negotiations, the pound is on the rise this Tuesday.

That’s because investors are eagerly awaiting September’s inflation reading, which is set to see the consumer price index finally hit a 5 year high of 3.0%. Such a reading would put even more pressure on the Bank of England to raise rates, though that hawkish urge may be tempered by the continued fall in real wages (set to be confirmed tomorrow) and a sharp month-on-month drop in retail sales (coming on Thursday).

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

Britain’s inflation rate could hit a new five-year high this morning, hitting people in the pocket and putting more pressure on the Bank of England to raise interest rates in November.

City economists predict that inflation, based on the Consumer Price Index, jumped to 3.0% in September. That would be an increase on August’s 2.9%, and the highest level since spring 2012.

If so, this would be the latest proof that the fall in the pound since last year’s Brexit vote is pushing up prices and hurting households and businesses.

It would also mean that prices are rising faster than earnings. The average pay packet only grew by 2.1% over the last year, meaning that real wages are falling.

Finn McLaughlin of Capital Economics says:

We expect that CPI inflation (09.30 BST) rose from 2.9% in August to 3% in September, intensifying the real wage squeeze. That said, we suspect inflation is now not far from its eventual peak.

We think that it will rise to about 3.2% before year-end.

Today’s inflation figures are particularly important as they’ll be used to set next year’s pensions rises (under the UK’s ‘triple lock’, pensions rise in line with wages, prices, or 2.5% - whichever is higher).

The retail prices index, another measure of inflation, will be used to set next year’s business rates. It is expected to rise to 4% today, which would mean a 4% rise in business rates for UK firms.

If CPI rises by 3.1% or more, then the Bank of England will have to write to the government explaining why it’s not keeping inflation close to its 2% target.

With excellent timing, BoE governor Mark Carney and colleagues are testifying to MPs on the Treasury this morning, so we’ll see what they say about inflation, Brexit, and the state of the economy.

Also coming up today:

The row between aircraft makers Boeing and Bombardier has taken a dramatic turn overnight; Airbus, the European consortium, is taking a controlling stake in Bombardier’s C Series business.

That division, which employs thousands in Northern Ireland, was hit with US tariffs totalling 300% last month following a complaint from Boeing.

Could this deal protect jobs? We’ll bring you more details as they come in

Theme park operator Merlin Entertainment, online fashion retailer ASOS and model toy maker Hornby are all reporting results this morning too.

Here’s the agenda

• 9.15am BST: Treasury committee question Bank of England deputy governor Sir Dave Ramsden, and new MPC member Silvana Tenreyro
  
• 9.30am BST: UK inflation figures for September
  
• 9.30am BST: UK house price figures for August
  
• 10am BST: Eurozone inflation figures for September
• 11.15am BST: Mark Carney testifies to the Treasury Committee