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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK wage growth rises; Trump blasts the Fed again - business live

A Job Centre Plus branch.
A Job Centre Plus branch. Photograph: Gareth Fuller/PA

Summary: UK jobs growth slows amid Brexit uncertainty

Here’s my colleague Richard Partington on the UK unemployment report:

Jobs growth in the British economy has cooled after months of employers appearing to shrug off Brexit concerns.

Employment in Britain increased by 32,000 to reach a record high of 32.75 million in the three months to April, according to the Office for National Statistics, fuelled by a rise in the numbers of self-employed people and women entering the workforce.

The rise was the weakest since August and significantly down on the average 167,000 recorded in the first quarter, although it continued to show that the UK jobs market was defying the worst fears over Brexit.

John Hawksworth, chief economist at PricewaterhouseCoopers, said: “The rate of increase in the latest three months was slower than in most previous quarters, which may be a sign that Brexit-related uncertainty is beginning to make companies more cautious about new hiring.”

John Philpott of the Jobs Economist consultancy said the rise in employment masked a drop of 38,000 in the number of workers employed by a company, with self-employed people accounting for the entire net rise. “A closer look at the figures offers a slightly different story,” he said.

Britain’s economy has continued to generate new jobs, sending the employment rate to record levels. Unemployment has also fallen, dropping by 34,000 to 1.3 million in the three months to April. The jobless rate remained at its lowest level since the mid 1970s, at 3.8%.

UK unemployment
UK unemployment Photograph: ONS

But, some economists believe that businesses have continued to hire workers to meet demand rather than invest for the long term in productivity-boosting technology amid the uncertainty over Britain leaving the EU.

In a potential sign that the country’s jobs boom could be running out of steam, the ONS said the number of job vacancies in Britain dropped to 837,000, falling from 861,000 at the start of the year.

Here’s the full story:

Bad news! Carbon emissions from the global energy industry rose by the fastest rate in almost a decade last year.

The increase, which risks worsening climate change, was ironically driven by more volatile weather patterns. Surprise swings in global temperatures created more days that were either unusually hot (driving demand for air conditioning) or cold (boosting heating).

My colleague Jillian Ambrose has the details:

Carbon emissions climbed by 2% last year, faster than any year since 2011, because the demand for energy easily oustripped the rapid rollout of renewable energy.

Two-thirds of the world’s energy demand increase was due to higher demand in China, India and the US which was in part due to stronger industry as well as the “weather effect”.

This was spurred by an “outsized” energy appetite in the US which recorded the highest number of days with hotter or colder than average days since the 1950s.

Here’s the full story:

Back in parliament, Bank of England deputy governor Ben Broadbent also had his reappointment hearing today, following up on Michael Saunders’ appearance in front of the Treasury select committee this morning.

Broadbent, who is one of the frontrunners to succeed governor Mark Carney next year, was tight lipped about whether he had applied for the job.

However, he said the Bank’s next leader should follow in Carney’s footsteps by continuing to modernise the 300-year-old institution (while of course fulfilling its remit for financial and price stability.) Gender and ethnic diversity also seemed to be on the agenda.

The deputy was immediately peppered with questions over the suspension of Neil Woodford’s investment fund, but Broadbent said he doesn’t think the episode had spilled over to other funds or financial markets “so far as we can tell.”

He said there will be episodes where investment fund suspensions “is the right thing to do”.

He told MPS:

“The real financial stability risk in some ways will come from funds having to liquidate assets very quickly at values that are well below their market price, and that’s precisely what suspensions are designed to prevent.

Broadbent said there may be questions over whether investors are sufficiently aware of the risks involved in investing in open-ended funds like Woodford. He also addressed the manager’s listing of private holdings on the Guernsey stock exchange to get around EU rules that cap unlisted investments at 10%. “There were no rules broken as far as I understand it,” Broadbent said.

But the Bank’s deputy governor ultimately came to the defence of City regulator the Financial Conduct Authority, which he said could not be expected to safeguard customers to the point where they faced little to no risk.

You cannot have a system where collectively could reduce all risk to zero. I don’t think that’s possible and I don’t think that’s desirable. There is risk in these funds, there is risk in risky assets.”

Trump: Federal Reserve is clueless

Meanwhile in America, Donald Trump has launched a not-very-presidential attack on the US central bank.

Trump has claimed that the Federal Reserve ‘don’t have a clue’, and should cut interest rates to help weaken the US dollar.

I think Trump is responding to new producer price inflation data (PPI), which show that the cost of US goods and services rose by 1.8% per year in May, down from April’s 2.2%.

However core PPI increased 2.3% in the 12 months through May after rising 2.2% in April -- partly due to a surge in the cost of hotel accommodation.

Trump has also defended his trade policies, in a tweet seemingly directed towards Fox News presenters:

Some 18,000 jobs are in doubt today at Sir Philip Green’s Arcadia empire.

Tomorrow Arcadia will ask its landlords to vote on a rescue plan that will cut rents and allow some stores to close. The vote was dramatically stopped at the last minute a week ago, after it became clear that Green didn’t have enough support.

He’s now offered a more generous deal -- but at least one landlord isn’t impressed. INTU, which owns 35 Arcadia stores, is likely to vote against the CVA tomorrow, sources say.

Green has claimed that Arcadia, which includes Top Shop and Miss Selfridge, could fall into administration if the deal isn’t approved.....

Public sector pay rose faster than wages at private companies last month - for the first time in around five years!

Total average earnings across the public sector rose by 4.2% year-on-year in April alone, the ONS reports, outpacing the 3.7% growth in private sector pay during the month.

The tight grip of austerity may finally be easing, as the government starts to relax its pay cap on public sector pay -- just as Brexit uncertainty hits companies.

The ONS explains:

Total pay growth tapered off because smaller bonuses were paid in that month than a year ago, and there was reduced growth in private sector total pay, especially in the wholesaling, retailing, hotels and restaurants and the manufacturing sectors.

Arno Hantzsche, senior economist at the NIESR thinktank, adds:

“A boost to wage growth in April came from the public sector where earnings picked up after a decade of pay restraint.

It offset some of the emerging weaknesses in the private sector where pay growth is stabilising as a result of Brexit and global uncertainties.”

Women in work hits record high

Looking back at the unemployment report, it’s clear that changes to the pension age mean more women are working longer.

The number of women in work jumped by 60,000 in the February-April quarter to a record high of 15.46m women.

It’s a different story for men, though; the number of employed men fell by 27,000 on the quarter to 17.29m.

More women are in work because the female state pension age has been raised from 60 to 65, and will soon rise again to 66. This eliminates the gender pension gap, but has also sparked a legal protest from women who say they weren’t given sufficient warning.

Tom Selby, senior analyst at AJ Bell, says these older workers are driving the so-called UK jobs ‘miracle’:

“The number of workers aged 50 or older rose by a staggering 305,000 in the most recent jobs figures, representing the lion’s share of the total 357,000 increase.

“In fact, the number of workers under age 24 dropped by 43,000 during the year while those aged 65 or older rose by 80,000.

“This will at least in part reflect state pension age increases, with women seeing their state pension age rise to 65 during 2018.

Bank of England's Saunders in no-deal Brexit warning

Bank of England Michael Saunders.
Bank of England Michael Saunders. Photograph: Graeme Robertson/The Guardian

Over in Parliament, MPs have been grilling Bank of England policymakers.

First up was Michael Saunders who was pushed for views on the US-China trade war, his consumer spending forecasts and, of course, Brexit.

The external member of the rate-setting monetary policy committee made waves even before he spoke. In written testimony to the Treasury Select Committee, Saunders warned:

“A no-deal Brexit would probably have a significant adverse effect on the UK’s long term growth prospects, because of reduced openness to international trade in both goods and services,and the resultant deterioration in the attractiveness of the UK as a global business location.”

Saunders, who is being reappointed to the Bank’s MPC, is at least optimistic on consumer spending, which he chalks up to jobs and pay “doing better than many people had expected.’’

It’s worth noting that his forecast of a continued rise in spending is contingent on a “smooth Brexit.”

On the global front, Saunders says the US-China trade war has dented global growth, which in turn has impacted the UK economy. However, he said central banks including the Bank of England still have the tools to respond.

“In terms of monetary policy fire power... if it was right to loosen policy, we could cut interest rates close to zero - we wouldn’t go to negative rates - but we still have the option of expanding QE further.

Now we’ve done substantial amount, but in theory we could expand it significantly further.”

Economist Rupert Seggins has pulled together a neat thread on today’s unemployment report:

Mike Amesbury MP, Labour’s shadow employment minister, is concerned that many of Britain’s poorest-paid workers are still struggling to cope.

Here’s his take on today’s unemployment data:

“Behind these statistics, the simple truth is that many people are trapped in low paid, insecure work – and they are often left struggling to meet basic household costs.

“In-work poverty has increased faster than employment, and 70% of children growing up in poverty live in a family where someone is in work. That is totally unacceptable.

“Labour will invest in training and the economy throughout the UK, so we can create decent, skilled jobs that last and lift people out of poverty.”

Last week, the ONS reported that 17% of the U.K. population was in poverty in 2017, up from 15.9% in 2016, and above the EU average (this is defined a households with disposable incomes below 60% of the national median).

The TUC is concerned that wages aren’t rising faster -- and argue that the minimum wage should be increased further (on top of this year’s rise).

General secretary Frances O’Grady said:

“Wage growth is still stuck in the slow lane. Real pay is still lower than it was before the 2008 crisis and this rate of growth won’t restore decent living standards.

“We need to speed things up. The government must raise the minimum wage to £10 as quickly as possible and take action to strengthen the economy, including by embedding real pay rises across the whole of the public sector.

“And unions should have the freedom to enter every workplace to negotiate fair pay rises.”

Workers benefit from higher minimum wage

In April alone, UK basic pay jumped by 3.8% per year.

That’s a welcome boost for workers, meaning wages grew much faster than inflation (which was 2.1% in April)

This is partly because the minimum wage rose at the start of April, by 4.9% to £7.83 an hour for those aged 25 and over.

That helped lift wages for the lowest-paying staff, helping to push total basic pay growth up to 3.4% from 3.3% (as flagged earlier).

Alastair Neame, senior economist at the CEBR thinktank, says around two million people will have benefitted, or around 7% of the workforce.

Although the change affects a large number of people, their pay is by definition relatively low, meaning there may be little impact on the headline measure of average weekly earnings. But for the affected households and their employers the impact is potentially significant.

Employers now face the prospect of paying higher wages from their margins or cutting their headcount and critics of minimum wages worry that higher unemployment will result from an artificially high wage floor.

Real wages STILL below pre-crisis levels

Even though basic pay rose last month (to 3.4% per year), workers are still poor than before the 2008 financial crisis.

The Resolution Foundation have crunched the numbers, and shows that average pay is still a little below its peak 11 years ago (once you adjust for the rising cost of living).

Real pay may not recover all the last ground until next year.

Minister hails wage growth

A view of Houses of Parliament and Westminster Bridge

Employment Minister Alok Sharma has welcomed today’s unemployment report, saying:

“Once again we see more people in work than ever before; 3.7 million more since 2010. A testament to the Government’s support for employers and jobseekers on a day where we also mark that 2 million claimants are now being supported through Universal Credit.

“With wage growth increasing pace on last month, outstripping inflation for the 15th month in a row, and record high female employment – the Government’s focus on pro-business policies and balanced economic management is delivering opportunity for all.”

Economists are broadly in agreement that Britain’s jobs market looks solid.

Here’s the ONS’s chief economist, Grant Fitzner:

Stephen Clarke of the Resolution Foundation thinktank points out that wages have been steadily outpacing inflation for some time now:

However, Howard Archer of EY Item Club is concerned that employment growth has slowed:

Tej Parikh, chief economist at the Institute of Directors, warns that job creation may be softening:

“The buoyant labour market is still going strong for the UK economy, even as it weathers widespread political uncertainty.

“Businesses’ avid appetite for new hires has drawn many out of unemployment and inactivity into work, which has provided uplift to household incomes. With vacancies outpacing the number of people available to fill them, competition has pushed up wages in new positions, giving a boost to job switchers and starters.

“However, the employment boom cannot last forever, and is certainly showing signs of softening. Business leaders are finding it harder to recruit as the supply of talent shrinks, and wage growth has failed to sustain the heights we saw earlier this year. To build on the existing strengths of the jobs market, the Government will need to step up on its training agenda in order to support businesses to overcome skills shortages and drive up productivity and pay packets.”

The number of vacancies in the UK economy has fallen - perhaps a sign that employment growth is weakening.

There were 837,000 unfilled positions in the three months to May - down from 861,000 at the start of this year.

UK vacancies

Here are the key points from the UK jobs report:

  • The UK employment rate was estimated at 76.1%, higher than a year earlier (75.6%) and the joint-highest on record.
  • The UK unemployment rate was estimated at 3.8%; it has not been lower since October to December 1974.
  • The UK economic inactivity rate was estimated at 20.8%, lower than a year earlier (21.0%) and close to a record low.
  • Excluding bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.4%, before adjusting for inflation, and by 1.5%, after adjusting for inflation, compared with a year earlier.
  • Including bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.1%, before adjusting for inflation, and by 1.2%, after adjusting for inflation, compared with a year earlier.

Once you adjust for inflation, real basic wage growth was actually flat in the last quarter at 1.5%.

Uk real pay growth

Why aren’t workers getting larger pay rises, given unemployment is so low? The ONS says....

In a tightening labour market, it would be expected that labour shortages would put pressure on wages to increase. However, the uncertainty in the economy may be reducing the impact of such pressure.

Updated

Basic pay growth strengthens

UK wage growth was also stronger than expected.

Average earnings, excluding bonuses, rose by 3.4% per annum in the February-April quarter. That’s up from 3.3% last month.

However, total pay (including bonuses) only rose by 3.1%, down from 3.3% a month ago.

The ONS says:

In the private sector, total pay increased by 3.2% on the year to reach £531 in April. In the public sector, it grew by 3% on the year to reach £542 in April.

In April 2019, total pay growth tapered off because smaller bonuses were paid in that month than a year ago, and there was reduced growth in private sector total pay, especially in the wholesaling, retailing, hotels and restaurants and the manufacturing sectors.

The data on regular pay (which excludes bonus payments) show that for the whole economy, regular pay increased by 3.4% on the year to reach £502 in April 2019. Private sector regular pay increased by 3.5% on the year to reach £493 in April, while public sector total pay increased by 2.8% on the year to reach £541

Updated

UK unemployment report beats forecasts

Breaking: Britain’s economy has kept creating jobs, in the face of Brexit uncertainty and trade war jitters.

The Office for National Statistics reports that the number of people in employment in the UK increased by 32,000 to a record high of 32.75 million, in the three months to April.

That’s a slowdown compared to the previous quarter, in which 99,000 new jobs were created.

Unemployment kept falling too -- down 34,000 in the last quarter to 1.3 million.

It means the UK unemployment remains at its lowest level in around 44 years, at 3.8%.

The unemployment rate for women fell to a joint-record low of 3.7%, with the number of economically inactive women reduced to a record low of 5.2 million.

More to follow....

Updated

Paul Donovan of UBS Wealth Management points out that @realDonaldTrump has been more vocal about the trade war with China recently.

However, Donovan also suspects Trump may resist imposing new tariffs as the re-election race hots up, telling clients:

Ted Baker goods are displayed in a store in London.

Shares in Ted Baker, the UK fashion chain, have slumped by a quarter this morning after it hit investors with another profits warning.

The group slashed its earnings outlook again, warning that trading conditions have deteriorated.

“Ongoing consumer uncertainty in a number of key markets and elevated levels of promotional activity across our global markets have resulted in extremely difficult trading conditions during the financial year to date.

I imagine the ‘forced hugging’ row which prompted founder Ray Kelvin to quit earlier this year won’t have helped the firm either..

Markets open higher

Investors don’t seem too worried about the threat of a recession.

European markets have opened higher, on the back of strong gains in Asia overnight. This has sent Britain’s Footsie index to a new five-week high, clawing back May’s losses.

  • FTSE 100: up 31 points or 0.4% to 7,406
  • German DAX: up 123 points or 1% at 12,168
  • French CAC: up 17 points or 0.3% at 5,400

Connor Campbell of SpreadEx says:

Closing their ears to more Trump trade chatter, the markets continued their June jump, if with slightly less spring in their step.

China’s Shanghai market also had a good day; the CSI300 index has jumped 3%, or over 108 points, to 3,719 points. Australia’s S&P/ASX 200 index has gained 1.6%.

Why aren’t investors panicking about the prospect of a deeper US-China trade war? One theory is that they suspect a deal will be struck at the G20 summit -- and that Trump’s threat of fresh tariffs if Xi doesn’t play ball will let him declare victory once the agreement’s been signed.

A close-up of Couple Toasting with red wine glass in restaurant

Donald Trump taste for trade conflict could even extend to French wine.

The president has claimed that America’s wine industry is being treated unfairly, because French wine incurs a low tariff when imported into the US.

The Hill has the details:

“You know, France charges us a lot for the wine and yet we charge them little for French wine,” Trump said.

The president claimed that winemakers in California complained to him that French wine can be imported at little cost, but that they have to pay high duties to export their products into France.

“And you know what, it’s not fair,” Trump said. “We’ll do something about it.”

Wine tariffs are set across the EU, so any clampdown on claret, champagne, and côtes du Rhône would also affect gewurztraminer, riesling, rioja etc from other member states.

According to America’s Wine Institute, EU tariffs range from 11 cents to 29 cents per bottle, while the US charges just 5 cents for a standard 750ml bottle from Europe, or 14 cents for fizz.

Trump, of course, is a teetotal, so wouldn’t suffer from a wine war.

Updated

CTA: Tariffs could cause a recession

Donald Trump’s threat to impose tariffs on all Chinese goods is worrying US businesses.

Gary Shapiro from the Consumer Technology Association fears they could drive the US economy into a “Trump recession”.

He told CNBC that tariffs aren’t working as well as the president claims:

“They are taxes, they hurt consumers, they hurt American companies.”

Last month, America hiked the tariff on thousands of Chinese products from 10% to 25%. It’s due to kick in next weekend, making food, machinery, consumer goods, and chemicals more expensive to import.

That still leaves around half China’s sales to the US, worth around $300bn, in the firing line for Trump tariffs.

Many economists fear that the US economy has slowed in recent months, partly due to trade conflicts.

Last Friday’s weak jobs report, showing American firms only hired 75,000 new staff last week, has added to these worries.

Updated

Introduction: Trade war fears and UK jobs report

United States President Donald J. Trump answers questions from the media yesterday.
United States President Donald J. Trump answers questions from the media yesterday. Photograph: REX/Shutterstock

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

Donald Trump once boasted of being a ‘Tariff Man’, and sometimes it feels like the US president enjoys talking about little else.

Just days after lifting the threat of a trade war with Mexico, Trump has floated the prospect of a deeper conflict with China.

In a piece of tub-thumping drama, the president declared overnight that he’d impose new tariffs on Chinese exports “immediately” if its leader, Xi Jinping, doesn’t meet him at the G20 summit later this month.

He told reporters that America could impose tariffs of 25%, or even higher, on the $300bn of Chinese goods that haven’t yet been caught up in the trade war. Such a move would be a major escalation in a conflict that has already dented trade and weighed on global growth.

But Trump isn’t backing down, telling CNBC that his trade war policy is getting results.

“The China deal is going to work out. You know why? Because of tariffs.

Right now, China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs.”

[Fact check: American importers, not Chinese exporters, pay these tariffs.....]

Trump’s comments put Beijing in rather a fix.

President Xi Jinping can hardly be seen kowtowing to the White House, so may resist committing to a meeting at the G20. But without formal talks at the G20, how will the trade war be resolved? This may take some diplomatic skills.

Also coming up today

New UK unemployment data is due this morning, which may show that the long run of rising employment levels has faded.

Economists also predict that earnings growth slowed - basic pay, excluding bonuses, may have risen by 3.1% in the year to April, down from 3.3% a month ago.

This would be another sign that the British economy is stumbling in the face of economic uncertainty at home and abroad; just yesterday, we learned that the UK economy shrank by an alarming 0.4% in April.

Michael Hewson of CMC Markets sets the scene:

Having seen manufacturing activity fall sharply in April there is a concern that wage growth could start to go the same way as the economy slows.

Having come in at 3.3% for the last three months there is a sense we could start to slip back, with expectations of a softening to 3.1%, for the three months to April. The unemployment rate is expected to remain unchanged at 3.8%.

Two of the Bank of England’s top policymakers - deputy governor Ben Broadbent and MPC member Michael Saunders - may give their view on the UK economy today. They’re appearing at parliament for re-appointment hearings to the BoE.

The agenda

  • 9.30am BST: UK unemployment and earnings report
  • 10am BST: Eurozone sentix investor confidence survey
  • 10am BST: BoE policymakers Michael Saunders and Ben Broadbent at the Treasury Committee in parliament

Updated

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