Closing summary: Carney on Brexit, interest rates, and a row with Haldane
Time for a recap.
Mark Carney told the Treasury committee that real incomes at the end of 2018 will be 5% lower than the Bank had forecast before the EU referendum in June 2016.
That’s due to economic uncertainty caused by Britain’s vote to leave the EU, and the weaker pound.
Households incomes are already 3.5% below where the Bank expected them to be, according to the governor, and that gap will continue to grow this year - even though wages are expected to rise.
Carney pointed out that consumption growth has slowed, from 3% in early 2016 to around 1%. Business investment has been lower as firms hit the pause button on major projects.
It’s uncertainty about what’s the relationship going to be with our biggest trading partner...Why wouldn’t you hold back if that’s going to be materially affected?
Governor Carney also explained that the Bank’s latest forecasts are based on three interest rate rises over the next three years. Encouragingly, he also predicted that people should see wages “firming” this year, and overtaking inflation.
Carney also took issue with his own chief economist, Andy Haldane, over the merits of the weaker sterling. Haldane said the fall in the pound had boosted net trade, and proved that ‘depreciations work’.
Haldane argued:
A combination of the weaker pound, and a stronger global economy, has worked its magic.
This prompted a slapdown from Carney who insisted that depreciations simply made people poorer.
Carney declared:
Depreciations don’t work. The have an economic effect, but they’re not a good economic strategy.
They may be an outcome of various things... but it’s how you make yourself poorer.
This qualifies as a wee smack-down? #Haldane #Carney pic.twitter.com/dmMVeuv1YQ
— Andy Bruce (@BruceReuters) February 21, 2018
Haldane told the committee that the Bank must avoid ‘stamping’ on the recovery by waiting too long to raise interest rates. By raising borrowing costs in a limited and gradual way, it can avoid a ‘handbrake’ turn in the future.
Historically the thing that has really killed jobs has been central banks stepping on the brakes too late.
Haldane also told MPs that he expects wage growth to pick up in the coming months. Some firms may agree pay rises of at least 3%, he suggested, which would close the gap with inflation.
Earlier in the day... the latest unemployment data showed that the jobless rate had risen to 4.4%. The unemployment total rose by 46,000 -- three-quarters of this was women - but the employment total also increased as more people stopped being economically inactive.
Basic pay rose to 2.5%, up from 2.4% a month earlier, but still below inflation.
Unions urged the government to help by raising public sector wages.
That’s all for today. Thanks for reading and commenting. GW
The session ends with Nicky Morgan MP congratulating Andy Haldane on his recent school visits.
I hope it will help with our pipeline of economists in the future, she signs off.
Carney also swerved a question about whether the financial markets expects a Brexit transition deal to be agreed at an EU summit in March.
It’s in no-one’s interests for talks to collapse, he suggests.
Nice dodge by Carney of loaded question on what will happen to sterling if no transition is agreed in March: "It’s not in the interest of either party to have a total falling out..."
— Cat Contiguglia (@CatContiguglia) February 21, 2018
The Bank’s policymakers are now asked about the recent stock market turmoil, and whether shares are now in a bubble.
Mark Carney points out that volatility had fallen to extremely low levels, so a rise in volatility is not a threat.
Pickup in volatility is "small potatoes" in policy terms, says Mark Carney.
— Andy Bruce (@BruceReuters) February 21, 2018
Possibly a Jersey Royal. He did not say.
Silvana Tenreyro says it’s hard to say whether equities are in a bubble. The recent falls were a ‘correction’, she adds, and we may see more as interest rates move up.
Carney declines to give any investment advice, but he points out that bubbles are often characterised by ‘new paradigm thinking’, and excessive leverage.
Bank policymakers clash over merits of weak pound
Bank of England Mark Carney and chief economist Andy Haldane just disagreed, publicly, over the merits of a weaker currency.
Haldane kicked things off by telling the Treasury committee that half of the growth in the UK economy in the last year came from net trade.
A combination of the weaker pound, and a stronger global economy, has worked its magic.
That has meant that net trade has been a significant contributor, and expect those effects to continue over the next two or three years.
A weaker currency, following the Brexit vote, has led to more trade, and less consumption, says Haldane.
Haldane declares:
Depreciations work, and that’s how they work.
But MPC member Silvana Tenreyro, who holds Argentinian citizenship, rejected this idea, saying:
Depreciations make people poor.
Mark Carney agrees, in what looks like a slap-down of his chief economist:
Depreciations don’t work. The have an economic effect, but they’re not a good economic strategy.
They may be an outcome of various things... but it’s how you make yourself poorer.
Deputy governor Ben Broadbent is also no fan of a weaker currency. The pound has fallen because the foreign exchange market has a pessimistic view about Brexit. If they’re wrong, then the pound could rally.
SPLIT ON THE MPC! Haldane (on rebalancing an economy): "Depreciations work." Carney immediately after: "Depreciations don't work. It's how you make yourself poorer."
— Philip Aldrick (@PhilAldrick) February 21, 2018
Mark Carney emphasises that the Bank doesn’t have full clarity on Brexit yet - but it should learn a lot more this year.
Maybe there are some people in the country who know exactly what the adjustments are going to be, but I’m not one of them.
Q: Your forecasts assume a net contribution to GDP from trade every year over the forecast period. Are you assuming a smooth Brexit transition, and a comprehensive free trade deal?
We are assuming a smooth transition, and an average of outcomes, says Mark Carney.
Those outcomes cover a range of outcomes, from operating under WTO rules to a close partnership similar to Norway’s.
Updated
Here’s a video clip of Mark Carney’s testimony.
Britain's interest rates will rise gradually but Brexit remains the biggest uncertainty, Mark Carney says https://t.co/z4Wb2DHtuh pic.twitter.com/V0SZkVH31f
— Bloomberg (@business) February 21, 2018
Q: If net inward migration falls even more than the Office for Budget Responsibility forecasts, you don’t see a significant impact on the economy?
You would see an impact on the overall speed limit of the economy, the potential growth of the economy, Mark Carney replies.
There could be a bigger effect if some skilled labour doesn’t come in, creating a ‘bottleneck effect’, he suggests.
The Treasury committee are back from their vote, and John Mann MP is probing the Bank of England about migration.
He’s suggesting that the first wave of EU migrants into the UK were better educated than today’s arrivals. If so, that could affect their propensity to spend, to buy a house, and to move out of the UK.
Q: Does the Bank have any data on this, or on the propensity of migrants to send money back home? If people have bought houses back in their country of origin, aren’t they more likely to move back?
Mann also suggests that the research cited by the Bank, which shows migration only has a small impact on wages, is old.
Deputy governor Ben Broadbent says these issues are ‘interesting’, but not directly relevant to the Bank’s responsibilities.
Silvana Tenreyro agrees that it is “far from clear” that migrants depress wages.
Business Insider have a good write-up of Carney’s comments about the Brexit vote hitting real incomes:
Bank of England Governor Mark Carney said on Wednesday that real incomes are set to be 5% below pre-referendum forecasts by the end of this year.
Appearing before the Treasury Select Committee on Wednesday, Carney said that British incomes are currently 3.5% below where the central bank had forecast them to be prior to the June 2016 vote to leave the European Union.
Economists’ forecasts have been ridiculed for their inaccuracy in many pro-Brexit circles but Carney said the figures were “to be expected” given the effects of the Brexit vote on the economy.
“We’re in a transition period or a pre-transition period is perhaps a better way to put it,” Carney told the Treasury Select Committee.
More here:
Mark Carney: People are earning 3.5% less than we estimated before the EU referendum https://t.co/XILvNcQ7kM pic.twitter.com/SNmM1x3f5q
— Oscar Williams-Grut (@OscarWGrut) February 21, 2018
Updated
Asked about migration, Andy Haldane says the evidence shows that the impact on wages is “relatively modest”.
The session is then interrupted because MPs have to go and vote.
Q: Are you saying that things are looking rosier in the economy, asks Charlie Elphicke MP?
Marginally, says MPC member Silvia Tenreyro, cautiously.
Q: So Brexit is a great success?
“Ummmm”, Tenreyro replies.
Does Britain have a problem measuring productivity?
You can more easily count the number of widgets than the contribution of YouTube to the economy, says deputy governor Ben Broadbent, explaining that it’s harder to measure productivity in a services economy.
But he thinks this is only a minor factor.
The key message from the Bank of England is that they believe wages are ‘firming’ .
Carney and Haldane optimistic on wage pressures.... $GBP likey
— Yogi Chan (@Yogi_Chan) February 21, 2018
Bank of England governor Mark Carney says a variety of indicators are consistent with firming wage pressures and that the Phillips curve is alive and well.
— Jamie McGeever (@ReutersJamie) February 21, 2018
FAO @D_Blanchflower
The long-awaited pick-up in wages is starting to take root, says Andy Haldane.
January to April is a ‘crucial time’ for wage negotiations, he adds, suggesting some companies will be offering pay rises ‘starting with a three’.
If he’s right, the long run of falling real wages could soon be over.
Q: What does this mean for the Phillips Curve?
It’s alive and well, Mark Carney replies happily.
[explainer: This is the idea that unemployment and inflation move inversely, so when the labour market tightens, firms raise pay]
Deputy governor Ben Broadband agrees that Brexit uncertainty is making UK companies delay taking big, irreversible decisions.
The depreciation of the pound has pushed up the cost of investment goods, as well as consumption goods, he explains.
But if uncertainty is lifted, there could be a “marked rise” in business investment......
Carney: Brexit uncertainty is hurting demand side of the economy
Q: Why has the UK gone from being one of the fastest G7 economies to the slowest, asks Labour MP Rushanara Ali.
Mark Carney agrees that Britain has moved “from the top of the pack to the bottom”.
He says the UK managed to eat up spare capacity after the financial crisis, and recovered quicker than other major economies.
But now, he says, the uncertainty following the EU referendum has hurt growth.
Consumption was growing at 3% in the first half of 2016, the governor says. It is now growing a little over 1%.
Business investment is three to four percentage points lower than would have been.
The uncertainty around Britain’s future trading relationship with the EU is “having an effect on the demand side of the economy....and that is probably affecting the supply side too.”
The fall in real wages, due to rising inflation, is another factor, Carney adds.
Real incomes today are 3.5 percentage points lower than the Bank expected in May 2016, and by the end of the year this gap will have widened to 5%, Carney predicts.
Q: Doesn’t fiscal policy have to do more to encourage productivity growth?
Carney resists the temptation to comment on government tax and spending.
Instead, he says the Brexit uncertainty is creating a ‘short-term’ drag on business investment.
It’s uncertainty about ‘what’s the relationship going to be with out biggest trading partner?’. It means that for this year, why wouldn’t you hold back if it’s going to be materially affected?
Updated
The UK recovery has been ‘very jobs rich’, says Mark Carney. But the downside is the weak productivity growth which
[reminder: today’s productivity figures were encouraging]
Haldane: Bank of England must avoid 'handbrake turn' on rates
The Bank of England’s chief economist, Andy Haldane, suggests that the ‘speed limit’ for the UK economy is current 1.5%.
BOE'S HALDANE SAYS 'SPEED LIMIT' FOR UK ECONOMY IS AROUND 1.5 PCT: RTRS
— *Walter Bloomberg (@DeItaOne) February 21, 2018
And then he tells the Treasury Committee that the BoE is committed to raising interest rates in a responsible manner.
Otherwise, Haldane warns, the BoE would be forced into more dramatic moves down the line - which could hurt growth and drive up unemployment.
Haldane says:
Historically the thing that has really killed jobs has been central banks stepping on the brakes too late.
As [former Federal Reserve chair] Janet Yellen says, recoveries don’t die of old age, they die because banks step on them, because they react too late.
We’re absolutely clear that we don’t want to be back there again, because it’s bad news for jobs. And that means going in this limited and gradual way to head things off in advance to prevent having to step on the brakes and handbrake turn at a later stage.
This is “fundamentally” at the root of our role as a central bank, Haldane adds seriously.
Here’s a handy chart, showing how the financial markets now expect the Bank of England to raise interest rates faster, compared to the end of October.
Governor Carney says hawkish signal in Feb was made relative to UK rate curve at time of Nov meeting. 1 additional hike priced in since, but no signs of a shift in timing (ie, markets truly bringing forward expectations for hiking). Still a +ve #GBP story to come from #BoE story pic.twitter.com/OthJrxP6Xp
— Viraj Patel (@VPatelFX) February 21, 2018
Mark Carney adds that interest rates won’t return to the pre-crisis average of 5%.
Q: Can you narrow down when rates might rise?
The BoE governor says that financial markets have begun to price interest rate expectations “in line with the underlying data”.
As such, the Bank feels less pressure to directly pre-commit to when it might tighten monetary policy.
Bank of England expects three rate hikes over the next three years.
Q: You say in this month’s quarterly inflation report that the Bank is likely to raise interest rates earlier and faster than expected in November. So what were the expectations then, and what are they now?
Mark Carney explains that November’s forecasts were based on a ‘conditioning path’ of two interest rate rises over the forecast period.
But in February, that path has moved to three rate rises -- because the Bank’s new forecasts believe there will “excess demand” in the UK by the third year of the forecast period.
Chief economist Andy Haldane chips in, saying the Bank sees a pick-up in underlying price pressures - including wage growth. That puts pressure on inflation, and increases the move
Deputy governor Ben Broadbent says moving from two rate hikes to three over the forecast period isn’t a major change.
Q: Any clues for the watching public about when these three rate rises might happen?
Carney says the public should expect to see wages firming this year, and a return to real wage growth in 2018.
But they should also expect inflation to remain over the Bank’s 2% target - unless there are “sufficient and timely” increases in interest rates.
So people should be able to anticipate what the Bank will do over the next few years, he argues.
And we're off! pic.twitter.com/tnqXJJI68u
— Treasury Committee (@CommonsTreasury) February 21, 2018
Updated
The session begins with Nicky Morgan, the chair of the Treasury committee, reminding Mark Carney that he recently told the BBC about his ability not to answer questions.
I hope we won’t have that this afternoon....
Carney creases up....
MPs quiz Bank of England
Over in parliament, the Treasury committee are about to interview the Bank of England about its latest quarterly inflation report.
They’ll be hearing from BoE governor Mark Carney, deputy governor Ben Broadbent, chief economist Andy Haldane and MPC member Silvana Tenreyro. It should be streamed live here.
Later on today, we're taking evidence from Dr Mark Carney and other representatives of the @bankofengland on its inflation report. Watch it live from 2.15pm here: https://t.co/rpLWjif0Hr pic.twitter.com/e3YNSf0629
— Treasury Committee (@CommonsTreasury) February 21, 2018
Full story: UK unemployment rises
Here’s my colleague Richard Partington on today’s UK unemployment figure:
The number of people out of work in Britain rose at the fastest rate in almost five years, official figures showed on Wednesday, fuelled by an increase in unemployment among young people under the age of 24.
After an almost two-year period of continuous declines in unemployment to the lowest levels since the mid 1970s, the number of people out of work rose by 46,000 to 1.47 million in the three months to December, according to the Office for National Statistics. The jobless rate rose to 4.4% against City forecasts for the level to remain unchanged at 4.3%.
Despite the increase in unemployment, there was better news from a rise in the number of people in work. The size of the workforce continued to grow, rising by 88,000 to stand at 32.15 million in the three months to December. This was driven by an increase in the numbers of people born in the UK, while there was a drop in workers from eastern Europe.
The ONS said there was an increase in the number of full-time employees, and decrease in part-time and self-employed work. John Hawksworth, a chief economist at PwC, said the reading on the labour market was positive because it showed more previously inactive people seeking work, some of them finding jobs and others still searching and so being classified as unemployed.
And here’s the full story:
Alongside the unemployment figures, the Office for National Statistics also reported that UK productivity has risen.
Output per worker per hour jumped by 0.8% in the fourth quarter of 2017. That’s an encouraging sign.
But...Accenture’s chief economist, Mark Purdy, says it’s too early to declare Britain’s productivity problems solved. He argues that businesses need to take better advantage of artificial intelligence, and boost UK growth.
The real game changers for productivity will lie in adoption of advanced technologies, infrastructure investment and reskilling of the workforce for the industries of the future. In particular, the UK must capitalise on its strong base of expertise in artificial intelligence, robotics and autonomous vehicles.
The potential is huge—our research shows AI could provide a £614bn boost to the UK economy by 2035. AI can not only drive greater efficiency, but enhance the productivity of the workforce and spur greater innovation in the economy. The technologies are there and the UK businesses can get a head start in this race.”
That’s a good excuse to post this video, showing one of Boston Dynamics’ dog robots in action:
oh cool they're literally building them to fight people now https://t.co/lxu74B2Ys7
— you heard it here first: tweting is bad (@alexhern) February 21, 2018
As this charts shows, the female unemployment rate in the UK has risen from 4.1% in the autumn to 4.4% by the end of 2017.
Unemployment: the political reaction
Britain’s employment minister, Alok Sharma, has welcomed the news that employment has risen - by 321,000 in the last 12 months.
Sharma says:
“Today’s figures show that this Government is building a fairer economy that supports people from all backgrounds.”
Great news as employment remains high with over 3 million more people in work since 2010 pic.twitter.com/Dd3xqqvGX2
— Alok Sharma (@AlokSharma_RDG) February 21, 2018
But Labour’s Debbie Abrahams, the shadow work and pensions secretary, pointed to 46,000 rise in unemployment during the quarter (including 35,000 women):
“The rise in unemployment is further evidence of the Tories’ economic failure, which has resulted in regional inequalities, wages failing to keep up with prices and millions of workers trapped in low paid, insecure work.
“Eight million people in working households live in poverty and the number of children in poverty is set to soar to a record 5.2 million over the next five years.”
The pound is continuing to drop following the news that UK unemployment has risen.
It’s now trading at $1.392 against the US dollar, down 0.7 of a cent. It’s also down 0.2% against the euro at €1.1312.
Predictions that today’s jobs data would put more pressure on the Bank of England to raise interest rates have been dashed.
Craig Erlam, senior market analyst at OANDA, explains:
Sterling is coming under a bit of pressure this morning after UK jobs data for the three months to December showed wages still growing at a moderate pace and unemployment ticking up to 4.4%.
While a higher reading on wage growth may have triggered a more bullish response from the pound, the data turned out to be quite insignificant as it’s unlikely to change the views at the Bank of England.
Resolution Foundation: Wage squeeze continues
The Resolution Foundation have sent over some charts, showing how UK real wages are still shrinking - even though basic pay growth rose to 2.5% in the last quarter.
Updated
Matthew Percival, head of employment at the CBI, argues that business are doing their bit by creating more vacancies than ever before:
“Rising unemployment is disappointing, but job vacancies reaching another record shows that businesses are creating opportunities. This underlines why skills, including retraining, need to be at the heart of our industrial strategy so that everyone can benefit from the opportunities created by economic growth.
“Meanwhile, slowing productivity growth and rising pay growth makes an interest rate increase more likely.”
UK unemployment rose in Q4 2017, but this was mostly driven by flows from falling inactivity. Employment continued to grow solidly, by 88k on the quarter pic.twitter.com/BtkDn2Y0VE
— CBI Economics (@CBI_Economics) February 21, 2018
Women bear brunt of jobless increase
Most of the 46,000 people who joined the unemployment total last month were women.
The ONS reports that the number of unemployed women jumped by 35,000 in October-December, to 689,000.
In contrast, the number of unemployed men rose by 11,000 during the quarter, to 782,000.
Updated: Some of those 35,000 women will have lost their jobs during the quarter. But this total also includes people who have returned to the labour market in the last few months, and who haven’t yet found a job (thanks to the ONS for flagging this up).
UK jobless rate rises, reflecting economically inactive people entering unemployment.
— Andy Bruce (@BruceReuters) February 21, 2018
Employment still rising (although not as fast as in @ReutersPolls economists expected).https://t.co/RxroveYL7N pic.twitter.com/nW5sypURhc
Dr Carole Easton OBE, chief executive of the Young Women’s Trust, fears that younger women are struggling to get work. She says firms need to stop discriminating against female applicants, close the gender pay gap, and provide affordable childcare to help women into the labour force.
Dr Easton says:
“The increase in unemployment we can see today has been driven by young women being out of work.
“21,000 more young women are now unemployed – a dramatic increase on the last quarter. Young women’s unemployment is now at its highest level since summer 2016. We should see this as a warning sign.
“Young women are telling us they want to work but hundreds of thousands are getting shut out of the jobs market, including by employer discrimination, low pay and unaffordable childcare.
Updated
Unemployment up in Wales, Scotland and Eastern England
Geraint Johnes, professor of economics at Lancaster University Management School, says today’s report paints a ‘mixed picture’.
The number of unemployed has risen by 46000 over the last three months of 2017, so that the unemployment rate now stands at 4.4%. The increased unemployment has been quite uneven across the UK, with marked increases in Wales, Scotland and the East but falls in some other regions.
Meanwhile across the UK the number of workers in employment also increased, as a result of a fall in the numbers who are economically inactive.
BREAKING: Unemployment fell in the West Midlands between October and December, down 2,000 to 153,000, new @ONS figures reveal. But the national figure jumped 46,000 to 1.47m due to big rises in Wales and the East of England pic.twitter.com/PhzgLI2cUg
— Simon Penfold (@SPenfold_star) February 21, 2018
UK jobs market is 'running out of steam'
Ian Brinkley, acting chief economist at the Chartered Institute of Personnel and Development, reckons the UK jobs market is running out of steam.
But the better news is that wages should finally overtake inflation soon.
Brinkley explains:
“The substantial and unexpected rise in unemployment is a clear warning that the UK labour market may be running out of steam, but there are reasons to believe that this is a one-off, as opposed to the beginning of a larger employment crisis. There has still been a significant rise in employment dominated by an increase in full time, permanent jobs, while some of the rise in unemployment may be attributed to more students entering the labour market.
“The strengthening of wage growth is also a welcome sign as, when coupled with likely falls in inflation, it opens up the possibility of real wage growth in the coming months, which will be a great relief to those workers who have seen their pay packets squeezed for months on end.”
John Hawksworth, chief economist at PwC, has dug into the jobs data -- and reports that it’s not all bad news.
“There was an unexpected rise in unemployment between the third and fourth quarters of 2017, but closer inspection suggests this is not a sign of labour market weakness as it was also accompanied by a healthy rise in total employment, focused on full-time jobs.
Instead, it reflects more previously inactive people seeking work, some of them finding jobs and others still searching and so being classified as unemployed.
Real wage squeeze continues
The TUC have calculated that real wages have now been falling for 10 months in a row.
That’s because regular earnings have consistently lagged inflation since early 2017 (when the plunge in the pound after the Brexit vote drove up import costs).
TUC General Secretary Frances O’Grady is urging the government to act by raising public sector wages.
“The great pay squeeze continues. This is the tenth month in a row that real wages have fallen.
“Britain’s cost of living crisis is pushing families to the brink. But the government is failing to act.
“Ministers must give public sector workers the pay rise they have earned and invest in jobs working people can live on.
“In-work poverty is soaring on their watch.”
Hannah Maundrell, editor in chief of money.co.uk, agrees that household budgets are still being squeezed:
“These statistics reiterate what we all knew, wages aren’t rising in line with inflation meaning the pounds in our pockets will buy us less. It’s great more people are in work, however, with prices rising faster than our pay packets, keeping a tight budget is a must.
“Our disposable income is still under pressure although employment rates are high they have fallen slightly, and wages just aren’t keeping up. It’s so important you make the most of your money and are savvy with your finances. You could save hundreds of pounds by simply switching your energy supplier or transferring old debt onto a credit card that doesn’t charge you interest for a set amount of time.”
Rising unemployment could scupper interest rate moves
Professor Costas Milas of the University of Liverpool says today’s labour market statistics give the Bank of England ‘a lot to think about’.
He believes it could deter some Monetary Policy Committee policymakers from raising interest rates in May.
Professor Milas explains:
Although basic pay, up to 2.5% (from 2.4% previously) seems to be heading towards the MPC’s forecast of 2.75% by 2018Q3, the rise in unemployment rate from 4.3% to 4.4% is a surprise. Only a few days ago, the MPC’s expectation was for an unemployment rate of 4.3% in 2017Q4, a further (albeit slight) drop to “around 4.25%” up until 2018Q3 and a further drop to 4.1% by 2021Q1. It was this forecast that fuelled expectations of higher, than previously thought, interest rates on the grounds that the economy would be able to afford an increase in the policy rate without a damaging impact on unemployment.
Today’s unemployment rate is potentially a turning point on the thinking of MPC members. It is more likely than not that they will want to see a reversal of this rise in unemployment in the next few months before contemplating another interest rate hike in May 2018.
This is from Jamie McGeever of Reuters:
UK unemployment rate in the three months to December unexpectedly rises to 4.4% from 4.3%, the first increase in two years. Far too early to read too much into one data release, but worth monitoring amid talk of possible interest rate hike and Brexit uncertainty.
— Jamie McGeever (@ReutersJamie) February 21, 2018
Public sector strikes hit record low
Public sector walkouts have hit their lowest level in at least 21 years, today’s report shows.
Just 44,000 days work were lost to strikes in the public sector during 2017, the ONS says. That’s the lowest figure since records began in 1996.
In addition, there were 232,000 working days lost in the private sector last year. That includes industrial action on UK train services, and McDonald’s first UK strike ever.
Vacancies hit record high
Today’s report shows that UK firm are struggling to find workers, even though unemployment has risen.
The number of vacancies hit a record high in the last quarter, up 24,000 to 823,000.
Despite headline increase in UK #unemployment (+46,000) the underlying data on labour demand was relatively strong. Further increase in #vacancies to all time high and declines in involuntary part-time working to <12% pic.twitter.com/0AnbojPB6k
— Simon French (@shjfrench) February 21, 2018
Economist Rupert Seggins points out that Britain’s wage squeeze continues, despite average earnings growth picking up:
Uptick in UK pay growth still not enough to offset the real pay squeeze. Real earnings (excl. bonuses) down -0.5%y/y if you like CPI best or -0.3%y/y if CPIH is more your cup of tea. pic.twitter.com/NV4G4Kn2wl
— Rupert Seggins (@Rupert_Seggins) February 21, 2018
This chart shows how Britain’s jobless rate has ticked up, after a long period of falling unemployment:
The pound has fallen by half a cent, on the back of the unemployment figures.
City traders are concluding that the Bank of England is less likely to raise interest rates soon while unemployment is rising.... even though wages also picked up.
Sterling has fallen to $1.394, from around $1.40.
Typical. Flag a rate hike and the unemployment rate rises.
— Andy Bruce (@BruceReuters) February 21, 2018
Naeem Aslam of Think Markets says:
Traders do not like the idea that the unemployment is ticking higher and wage growth has no real strength.
Updated
Basic pay rises, but still lags inflation
UK wage growth has picked up, but earnings are still lagging behind inflation.
Basic pay rose by 2.5% per year in the three months to December, the Office for National Statistics reports. That’s up from 2.4% in the previous month.
Pay including bonuses also rose by 2.5% in the quarter - unchanged from last month.
Britain’s inflation rate is currently running at 3%, so workers are still being hit with a real wage squeeze - but at least the gap is narrowing.
UK unemployment rate rises
Breaking! Britain’s jobless rate has risen for the first time in almost two years.
The unemployment rate ticked up to 4.4% in the three months to December, up from 4.3% (a four-decade low). The number of people out of work rose by 46,000 to 1.47 million.
But... the number of people in work also rose, by 88,000 during the quarter, to 32.147 million.
More to follow...
Eurozone private sector growth slows
Growth across the eurozone seems to be slowing this month, but remains pretty strong.
The latest Eurozone ‘purchasing managers index’ from data firm Markit has fallen to 57.5 this month, down from 58.8 in January.
Any reading over 50 shows that activity grew during the month. This is the slowest expansion since last November, but it’s still robust. January’s figures were the best in almost 12 years.
#Euro Markit Composite PMI Flash at 57.5 https://t.co/zlwVd8AAmO pic.twitter.com/R8HfxBZaS2
— Trading Economics (@tEconomics) February 21, 2018
Companies reported that new order growth slowed to a five-month low. More encouragingly, eurozone bosses said they are actually more optimistic about their future prospects.
Chris Williamson of Markit says the picture still looks bright.
“The service sector is enjoying its best growth spell for seven years and the manufacturing sector’s performance remains one of the strongest seen over the 20-year survey history.
Companies in France and Germany both reported that they have kept growing this month, although at a slower rate than in January.
Flash #France #PMI Composite Output Index at 57.8 in February (4-month low). This level signals +0.7-8% GDP rise in Q1 https://t.co/gjwmawpNMm pic.twitter.com/6vQ6hsS1t4
— Chris Williamson (@WilliamsonChris) February 21, 2018
Germany PMI also declined in February, although less dramatically than in France. Still fairly strong pic.twitter.com/zOJdENzXa6
— Ulrik Bie (@UlrikBie) February 21, 2018
AA shares tumble
Ouch! Shares in AA have plunged by a quarter this morning to a fresh record low, after the company cut its profit forecasts and outlined a new strategy.
CEO Simon Breakwell announced his new strategy, including extra investment in roadside rescue, a focus on younger drivers, more competitive pricing. It is also planning a new push for its Car Genie product - a piece of kit designed to spot technical problems early.
Breakwell says:
The strategic plan I am setting out today will unlock the full potential of the AA by delivering targeted and strategic investment in our people, our products, our systems and operations. We are building on the solid foundation that our investments since the IPO have created.
It will take the AA from a company helping when you break down to one actually predicting when you might break down in the first place. This plan will deliver front line resource to improve the efficiency, predictability and resilience of our operations as well as investment in game-changing growth drivers - in Connected Car and Insurance. These investments, while reducing our short term profitability, are vital to our long term success.
All this will cost money. So the AA has lowered its 2019 profit forecasts, and decided to only pay a dividend of 2p per share in future - down from 5p this financial year.
The City has responded by wiping nearly a third off the company’s share price. It’s fallen from 116p to just 81p this morning.
The AA could do with some roadside assistance of its own. The British breakdown service has shed a quarter of its market value after slashing its dividend and issuing a profit warning https://t.co/aADGsc7SMn pic.twitter.com/ajP6TBa6C4
— fastFT (@fastFT) February 21, 2018
Updated
In a boost for long-suffering Lloyds shareholders, the bank has reported its biggest profit since the financial crisis and announced a £1bn share buyback.
My colleague Angela Monaghan explains:
Lloyds Banking Group posted sharply higher profits for 2017 and announced plans to return £1bn to shareholders after a “landmark year” that saw the high street lender return to private ownership after its taxpayer bailout in 2008.
The bank reported a 24% increase in pre-tax profit to £5.3bn last year, and said its strong capital position would allow the £1bn share buyback, worth up to 1.4p per share.
Lloyds shares are up 1.3% in early trading, to 68.82p.
Updated
The agenda: UK jobs report, Mark Carney at parliament
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we discover if Britain’s economy is continuing to create jobs, and learn how much the UK government raked in from taxpayers last month.
The latest unemployment figures (due at 9.30am) are expected to show that the UK jobless rate stuck at just 4.3% in the last quarter of 2017, the lowest in over 40 years. But the bigger question is whether wages picked up.
Economists predict that basic pay rose by 2.4% per annum in the three months December, while pay including bonuses rose by 2.5%. That would match last month’s figures, and mean that earnings are still falling behind inflation (3% in January).
A strong earnings report would be very welcome, as households have suffered a long cost of living squeeze since inflation started shooting higher.
Most importantly this means that the pay squeeze continues. Prices are rising faster than wages, and although we expect inflation to subside, real wages are unlikely to rise much before well into 2018 pic.twitter.com/qEALTYw1zw
— ResolutionFoundation (@resfoundation) February 13, 2018
But, it might also encourage the Bank of England to raise interest rates in a couple of months time - bad news for indebted families who are already struggling.
David Madden of CMC Markets says:
The earnings figures will be the ones to watch as job creation in the UK has greatly outpaced wage increases. Average earnings has been slow to pick up, and should we see it tick up it could trigger another leg higher in the pound.
The most recent Bank of England (BoE) update showed us they are little on the hawkish side, and they signalled interest rates could rise sooner that some traders thought. If Britons see a respectable jump in wages, then we are more likely to see a rise in consumer spending. Dealers are preparing themselves for the possibility of a rate hike in May and the average earnings could be the catalyst.
We’ll get an insight into the Bank’s thinking, when BoE governor Mark Carney faces MPs this afternoon to discuss the latest quarterly inflation report. He’ll be accompanied by Ben Broadbent, Andy Haldane and Silvana Tenreyro.
We also get the latest UK public finances. They’re expected to show that Britain raised around £9.5bn in January - always a bumper month for tax receipts.
Data firm Markit will give its early assessment of how the eurozone’s economy is faring.
Plus, banking group Lloyds, housebuilder Barratt and roadside assistance group AA are reporting results.
Lloyds FY revenues in-line, pre-tax profits miss, extra £600m PPI provision in Q4, FY dividend +20%, up to £1bn share buyback
— Mike van Dulken (@Accendo_Mike) February 21, 2018
AA strategic update includes cut to guidance, reduces dividend.
— Mike van Dulken (@Accendo_Mike) February 21, 2018
The agenda
- 9am GMT: Eurozone ‘flash’PMI survey for February
- 9.30am GMT: UK unemployment figures
- 9.30am GMT: UK public finances for January
- 2.15pm GMT: Bank of England governor Mark Carney questioned by the Treasury committee
Updated
