Afternoon summary
Time for a recap
Britain’s cost of living squeeze has intensified, after wages again failed to keep pace with inflation. Average earnings only rose by 2.1% in May to July, meaning real wages actually shrank by 0.4%.
Economists have warned that households are at “breaking point”, and blamed the fall in the pound after the Brexit vote for making imports pricier.
Low productivity, technological changes and the rise of the Gig economy are all also weighing on household incomes.
The government, though, has hailed news that Britain’s unemployment rate has hit a new 42-year low of 4.3%. That’s because an extra 379,000 people joined the labour force in the last year.
Employment minister Damian Hind says:
“The strength of the economy is helping people of all ages find work, from someone starting their first job after leaving education, to those who might be starting a new career later in life.
“Britain’s employment success is largely about a growth in full-time and permanent work, as employers invest in Britain and offer quality job opportunities that put more money into people’s pockets.
“But there is more to do, and we will continue to build on our achievements through our employment programmes and the work of Jobcentre Plus.”
But the surprisingly weak earnings figures has hit the pound, which has fallen back from a one-year high against the US dollar.
City experts believe the poor wage figures will make it harder to raise interest rates, with one think tank estimating that workers are £309 worse off than a year ago.
The Bank of England meets tomorrow, and could be split 6-3 over whether to hold borrowing costs or raise them.
Helal Miah, investment research analyst at The Share Centre, says the economy looks fragile:
With consumer’s real incomes falling, they are becoming more cautious and spending less. This is reflected in the increasing number of retailers with profit warnings or expressing cautious outlooks.
And that’s a good moment to stop. Thanks for reading and commenting! GW
After a series of record highs, shares have dipped on Wall Street at the start of trading.
Apple’s shares have fallen 1%, following the unveiling of its latest products - including the iPhone X - last night.
S&P 500 opens lower as stocks slip from record highs https://t.co/pCZsKysyFi pic.twitter.com/to9O4YXtAT
— CNBC (@CNBC) September 13, 2017
Here’s our news story on today’s unemployment and wage figures:
Anger in the streets if Athens boiled over this morning with police firing tear gas at protesting workers from the Canadian-owned Eldorado Gold mine company.
Helena Smith reports from Athens.
Police fired off rounds of tear gas at an estimated 100 workers protesting against potential job losses outside the energy ministry.
Officers said they took the unexpected action after demonstrators attempted to storm the building shouting: “we won’t leave until workers permits are handed out.”
Greek gold miners clash with police in Athens as doubt hangs over major investment. Video by @SdrjanTV https://t.co/Bg99DUy0es pic.twitter.com/uQaRsOZrH9
— AP Business News (@APBusiness) September 13, 2017
Tensions have mounted since the Vancouver-based company threatened to pull out of Greece – effectively dismantling the country’s biggest foreign investment – because of endless delays in procuring permits.
George Burns, Eldorado’s chief executive, announced that operations would be halted on Monday only hours after prime minister Alexis Tsipras said his leftist-led government would do everything it could to welcome foreign investment. Under his personal stewardship, he said, a task-force dedicated to “Grinvestment” would replace fears of Grexit.
Around 2,000 people are employed by Eldorado which says its Skouries and Olympias projects in northern Greece have the potential to make Greece a leading European gold producer. Environmental concerns have prompted violent protests in what has become a test case of the government’s resolve to attract foreign investors.
And in the last few minutes, the government appears to have caved in and said it will be issuing licenses for Eldorado to press ahead with investments in northern Greece.
The energy minister Giorgos Stathakis said necessary paperwork “will be concluded in the coming days, today and tomorrow. Three permits will be issues ... allowing Olympias to be fully operational.”
Updated
Bitcoin is having a bad day, following Jamie Dimon’s attack on the crypocurrency as a “fraud” that will blow up.
One Bitcoin now costs $3,830, down 8% today, and a fifth less than two weeks ago.
Meanwhile, tulip prices... pic.twitter.com/cuzyXMY9F3
— Eddie van der Walt (@EdVanDerWalt) September 13, 2017
Anyone who bought Bitcoin back in 2012, when it traded at just $11, is still sitting on a massive profit though.
Other digital currencies are also falling sharply too:
#BITCOIN 3816.25 -8.83%#ETHER 261.82 -11.12%#BITCOINCASH 478.35 -10.99%#cryptocurrency#BTC #ETH #BCH https://t.co/v7SwsWdoCY
— IGSquawk (@IGSquawk) September 13, 2017
But some Bitcoin supporters appear to be shrugging off Dimon’s claim that it’s only useful for drug dealers, murderers and people living in North Korea.
OH: 'so despite Dimon's objections to Bitcoin, he is essentially admitting it has its uses'
— BrokenBanker (@BrokenBanker) September 13, 2017
(OH = overheard)
The Social Market Foundation thinktank has calculated that the average worker is £309 per year worse off than a year ago, due to the drop in real wages.
SMF chief economist Scott Corfe points out that private and public sector workers are suffering alike.
“After adjusting for inflation, workers are significantly worse off than they were a year ago. In part this reflects the increase in the cost of living as a weak currency has pushed up the price of imported goods.
“But it also reflects weak earnings growth which remains stubbornly stuck in the doldrums. Improving productivity to boost pay is absolutely critical.”
“With total pay growth lower in the private sector than the public sector in July, the government will be under more pressure to boost the pay of all workers in the economy. Lifting the public sector pay cap benefits less than a fifth of the workforce.
Curiously, agriculture workers got a pay rise, even after inflation, in the last quarter.
That could be a sign that farmers are having to pay more to attract and regain staff, now that Brexit and the fall in the pound has put off workers from the EU.
Estate agents suffered one of the biggest drops in real income, though:
Government: We're helping people find work
The minister for employment, Damian Hinds, says we should celebrate Britain’s success in creating jobs - while conceding that things could be better.
Hinds says:
“The strength of the economy is helping people of all ages find work, from someone starting their first job after leaving education, to those who might be starting a new career later in life.
“Britain’s employment success is largely about a growth in full-time and permanent work, as employers invest in Britain and offer quality job opportunities that put more money into people’s pockets.
“But there is more to do, and we will continue to build on our achievements through our employment programmes and the work of Jobcentre Plus.”
Updated
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Alistair Darling: We lost control with Northern Rock
Elsewhere, former chancellor Lord Alastair Darling has been reliving the Run on Northern Rock 10 years ago this week.
My colleague Jill Treanor reports:
The Resolution Foundation has held a conference “between a rock and a hard place: 10 years on from the Northern Rock” with the chancellor of the time Alistair Darling and the new chair of the Treasury select committee Nicky Morgan.
Darling has admitted that the government “lost control” for several days this time 10 years ago when customers started queuing up around branches of the Newcastle-based lender.
He also says the impact is being felt even now, arguing that:
I don’t think Brexit would have happened if it hadn’t been for the political and economic events of the preceding 10 years. people were disillusioned. they felt badly treated, they felt squeezed.
The policies that were embarked upon by governments – not just in the UK – afterwards of austerity are also to blame.
“Trump would never have been elected,” he added.
And the continuation of electronic money – quantitative easing – is also a problem. It was “never intended to be the economic weapon of choice”
Morgan, in her first public appearance since being elected to chair the select committee, has said that when canvassing on doorsteps she felt the public wondered how money had been found to bailt out banks but not for other things.
She had indicated that the select committee intends to take more evidence from the financial policy committee at the Bank of England – set up to look for the next problem in the system – and champion the cause of consumers. Some small business customer she said were still avoiding dealing with banks because of the way they had been treated.
Asked about whether bankers should be punished, Darling said that:
“It’s very difficult to criminalise bad judgements”.
Updated
Dr John Philpott, director of The Jobs Economist, says you can see a “Brexit effect” in the UK’s labour market:
The more competitive exchange rate has given a boost to manufacturing jobs, up 34,000 in the second quarter, but there are signs of weakness in the real estate sector where the number of jobs fell by 34,000. The consequences of the real wage squeeze for consumer spending may also be putting pressure on the arts, entertainment and recreation sector, which shed 30,000 jobs in the quarter.
This kind of mirror image effect could be an early pointer to a post Brexit future of winners and losers in the UK job market.’
Also, of course, the plunge in the pound after the Brexit vote is the main reason inflation has risen sharply to 2.9%.
Britain’s public sector has shrunk to its smallest level since at least the start of the millennium.
Today’s report says:
For June 2017, 16.9% of all people in work were employed in the public sector (the lowest proportion since comparable records began in 1999) and the remaining 83.1% worked in the private sector.
UK public sector now smallest as share of workforce (16.9%) since 1999, average public sector employee £1,000/yr worse off v 2010 peak.
— Jamie McGeever (@ReutersJamie) September 13, 2017
Updated
Public sector bears brunt of pay squeeze
This latest fall in real wages means that British workers still haven’t recovered the earnings lost after the financial crisis.
The Resolution Foundation has calculated that average earnings are £16 per week below their peak in 2007. That means workers are around £830 per year worse off.
Continuing pay falls come with avg weekly earnings now £16 below peak. OBR forecasts suggest point of recovery now well into next decade pic.twitter.com/yPHv6pI12c
— ResolutionFoundation (@resfoundation) September 13, 2017
Public sector workers have been hit harder, though, ‘thanks’ to the government’s 1% pay cap:
Average real public sector pay (excluding banks) is now about £20 a week below peak, or £1000 per year pic.twitter.com/chtH5tMHuL
— ResolutionFoundation (@resfoundation) September 13, 2017
Ben Brettell, senior economist at Hargreaves Lansdown, is also worried about Britain’s weak productivity:
The Bank of England predicts wage growth will rise to 3% next year, while inflation falls back towards the 2% target. The first part of that equation looks optimistic to me.
The only sustainable driver of real wage growth is increasing productivity – and in this respect the UK continues to lag behind its developed-world counterparts, notably the US and Germany. Unless a solution to this productivity puzzle is found, a meaningful improvement in living standards could be some way off.
Professor Geraint Johnes, Director of Research at the Work Foundation at Lancaster University, can see the rise of the ‘gig’ economy in today’s jobs report.
He says:
There have been particularly large gains in accommodation and food services (consistent with the boost to domestic tourism provided by the weak pound) and also in information and communication services.
Employment in real estate activities and in professional, scientific and technical services has declined over the quarter.
He also fears that UK wage growth will remain elusive:
Indeed the rapid rise in employment suggests that productivity growth remains hard to come by, and this will continue to put limits on pay growth.
The number of employees increased by 292,000 to 27.10 million over the last 12 months, according to today’s report.
But the number of self-employed people also rose, by 88,000 to 4.85 million.
Jeremy Cook, chief economist at currency firm WorldFirst, says we shouldn’t celebrate the fall in the UK unemployment rate to a 42-year low.
“There are more people in work than there have been for over 40 years, yet those people are only getting poorer due to wages that can’t keep up with inflation. Pay increases are simply not coming for a multitude of reasons.
Low productivity, Brexit fears over the future of individual sectors’ trade relationships and margins cut by higher import costs have all been referenced by companies large and small so far in 2017.
This is now the nature of the UK business landscape: multi-decade lows in joblessness are not something to celebrated.
Fidelity: Household finances at breaking point
Britain’s weak wage growth is leaving consumers struggling to cope, warns Ed Monk, associate director for personal investing at Fidelity International.
Monk calls today’s report a “bitter pill to swallow”, adding:
Yesterday’s UK CPI figures showed that inflation had jumped to 2.9% which means that wages are falling further behind the price we pay for goods and services.
As a result UK households will continue to have their finances stretched to breaking point.
Fidelity also sent over this chart, showing how wages (in red) are failing to keep pace with inflation (blue).
So, Monk expect the Bank of England to leave interest rates at their record lows of just 0.25%.
“Lagging wages makes it more likely the Bank of England will look through rising inflation when it decides on interest rates this week.
Prices are rising above target, which creates the case for raising rates, but today’s wage data suggests all is still not right in the economy.
Updated
Pound hit by wage disappointment
Ouch! The pound has fallen back from this morning’s one-year high, following the disappointing wage growth figures.
Sterling is back below $1.33; traders are concluding that the cost of living squeeze will deter the Bank of England from raising interest rates.
Naeem Aslam of Think Markets says the BoW won’t want to “choke” consumers, adding:
The UK wage growth data was as bad as it can get.
Unemployment: the key charts
At 4.3%, Britain’s jobless rate hasn’t been this low since March to May 1975, when Harold Wilson was prime minister:
But this recovery simply isn’t delivering solid pay gains. Instead, wage growth was stubbornly unmoved at 2.1%, both including and excluding bonuses.
Employment up, unemployment down
- There were 32.14 million people in work, 181,000 more than for February to April 2017 and 379,000 more than for a year earlier.
- The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.3%, the highest since comparable records began in 1971.
- There were 1.46 million unemployed people (people not in work but seeking and available to work), 75,000 fewer than for February to April 2017 and 175,000 fewer than for a year earlier.
UK jobless rate hits new 42-year low but real wages keep falling
Breaking! Britain’s unemployment rate has fallen to a new 42-year low of 4.3%, in the three months to July.
That’s down from 4.4% a month ago, and the lowest since 1975.
But real wages are still falling. Average weekly earnings only rose by 2.1% per year in the quarter, weaker than expected, and the same as last month.
That means that the cost of living squeeze is getting worse, as inflation has jumped from 2.6% to 2.9%.
More to follow!
JP Morgan's Dimon: Bitcoin is a fraud
The boss of JP Morgan has weighed in on the cryptocurrency debate, declaring that Bitcoin is “a fraud” that will end in tears.
Jamie Dimon told a banking conference in the US that he’d fire any staff caught trading Bitcoin, arguing that:
The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.
“If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than US dollars.
So there may be a market for that, but it’d be a limited market.”
A decade after the run on Northern Rock, Britain’s banking sector is unprepared to handle another crisis.
That’s according to a new report by the Adam Smith Institute, the right-wing thinktank, which argues that the Bank of England is failing to police the banks properly.
Here’s the full story:
Economist Rupert Seggins is tweeting some good charts to get us up to speed, ahead of today’s UK jobs report.
They shows how real wages (adjusted for inflation) have been falling for several months, even as the unemployment rate hits its lowest since the 1970s.
1. UK labour market stats today. The headline was given to us yesterday. Pay squeeze. Using the CPI, real pay is expected to fall -1%y/y. pic.twitter.com/ZgzXl4IARn
— Rupert Seggins (@Rupert_Seggins) September 13, 2017
2. The UK employment juggernaut is expected to rumble on. Consensus forecast says 154,000 more in employment in the 3 months to July. pic.twitter.com/cEBK6vSlUB
— Rupert Seggins (@Rupert_Seggins) September 13, 2017
3. How low can the UK unemployment rate go? Nobody really knows. Big headache for the #MPC. Peacetime lows have been in the 1% to 2% range. pic.twitter.com/8C2bdQBynE
— Rupert Seggins (@Rupert_Seggins) September 13, 2017
4.The (rough) historical relationship between wage growth & unemployment may still be there. Sort of. Light at the end of the pay squeeze? pic.twitter.com/iDDXr8rmIi
— Rupert Seggins (@Rupert_Seggins) September 13, 2017
The strength of the pound is pulling shares down in London this morning.
The FTSE 100 has shed 58 points, or 0.8%, to 7354. Mining giants, oil companies and major exporters, such as pharmaceutical group Shire and drinks firm Diageo, are among the fallers.
A stronger currency means their overseas earnings are worth less in sterling terms.
Connor Campbell of SpreadEx says:
The miners have all moved lower, while BP and Shell are both down half a percent. However, the main reason for the UK index’s decline was the pound’s latest climb.
The British pound has seen “tremendous strength this week”, says Naeem Aslam of Think Markets, adding:
If you want to see a currency which is having one of the best runs this week, then look no further.
Sterling has also risen against the euro, gaining 0.2% to €1.1124.
The agenda: Pound bounces ahead of jobs report
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound has hit a new one-year high this morning, as the City braces for a new health-check on Britain’s jobs market.
Sterling has risen to $1.332 against the dollar, the highest level in exactly a year. That means it has clawed back around half its losses after last year’s EU referendum.
Today’s rally follows yesterday’s unexpected jump in inflation to 2.9%, which is fuelling expectations that interest rates could rise sooner than previously thought.
But... is Britain’s economy really strong enough to handle a rate rise? We’ll get a clue at 9.30am when the latest labour market statistics are released.
The City expects that the UK economy continued to create jobs in the last quarter, leaving the unemployment rate at just 4.4%, its lowest in over 40 years.
But this jobs recovery hasn’t been feeding through to people’s pockets. Average earnings, excluding bonuses, are expected to have risen by 2.2% per year in the three months to July. That would be an improvement on last month’s figures, but well below inflation.
As Royal Bank of Canada put it:
For average earnings the story continues to be disappointing.
And that’s why most economists don’t expect the Bank of England to raise interest rates until 2018.
But...the BoE meets to set interest rates tomorrow, and there’s chatter in the City that chief economist Andy Haldane could become the third policymaker to vote for a hike.
Michael Hewson of CMC Capital Markets explains:
A solid wages number could shift the calculus on the MPC further towards a rate rise with chief economist Andrew Haldane likely to join the other two hawks Michael Saunders and Ian McCafferty in pushing for a rate rise, given recent comments he made during the summer, when inflation ticked up to the same level it is now.
Also coming up...
City traders will also be remembering the events of 10 years ago, when Northern Rock was forced to seek help from the Bank of England - triggering the first UK bank run in over a century.
The Resolution Foundation is holding an events in London with former Chancellor of the Exchequer Alistair Darling this morning, so we’ll keep an ear out.
European stock markets are expected to dip at the open, with the FTSE 100 being called down around 18 points or 0.25%.
European opening call @LCGTrading $FTSE -18 points at 7382$DAX -26 points at 12498$CAC -9 points at 5200#EuroStoxx -7 points at 3505
— Ipek Ozkardeskaya (@IpekOzkardeskay) September 13, 2017
We also get new eurozone unemployment and factory output statistics.
The agenda
- 8am BST: Eurozone unemployment figures for the second quarter of 2017
- 9.30am: UK labour market report
- 10am: Eurozone industrial production figures for July
Updated
