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UK pay squeeze worsens as real wages fall again - business live UK pay squeeze worsens as real wages fall again - business live
(35 minutes later)
10.39am BST
10:39
The rise of Britain’s ‘Gig economy’, with its low-paid, precarious jobs, is surely a factor behind the weak wage growth.
Dr John Philpott, director of The Jobs Economist, says it is “remarkable” that pay is so weak when the employment rate is at a record high of nearly 75%.
Hard times and near full employment make strange bedfellows, highlighting the extent to which a de-regulated labour market with an abundance of workers available to fill low wage vacancies has altered the UK jobs landscape.’
10.31am BST
10:31
The Resolution Foundation have crunched today’s figures, to show how Britain’s workers’ pay is still below its levels before the financial crisis (once you adjust for inflation).
Pay squeeze deepens sharply in today’s labour market stats: annual real pay growth was -0.6% in the three months to Apr-17 pic.twitter.com/lJqnunNoOv
Return of pay squeeze leaves avg weekly earnings £16 below peak. Restoration of peak likely to be delayed well into next decade pic.twitter.com/UB3SQYIaZZ
They also show how the economy is still creating jobs, although some parts of the country aren’t feeling the benefits as much as others:
Jobs growth stays strong – employment rate remained at record high of 74.8% in the three months to April pic.twitter.com/p7vjRmOkRp
Encouraging employment re-balancing in much of the country, but the employment rate is low & falling in NI, London and E Mids pic.twitter.com/uIgUEhWmM6
10.22am BST
10:22
Ben Brettell, senior economist at Hargreaves Lansdown, also fears that the pay squeeze will hurt growth:
The UK economy faces a dangerous cocktail of political uncertainty, slowing growth and shrinking real wages. First-quarter GDP figures were disappoining, while a recent report from VISA confirmed consumers are under pressure, with spending falling 0.8% year-on-year in May.
Households are being squeezed from both directions, with inflation rising faster than expected and wages rising more slowly. This doesn’t bode well for economic growth – the UK economy is heavily reliant on the consumer and falling real incomes will eventually translate into lower retail sales.
10.21am BST
10:21
The pay squeeze puts more pressure on the Bank of England to consider raising interest rates to curb inflation, argues Neil Wilson of ETX Capital (whose hopes of stronger wage growth have been firmly dashed).
He writes:
Wages are climbing at a rate of just 2.1%, or just 1.7% when you excluded bonuses. This run rate is just not enough to sustain consumer spending where it has been of late when inflation is accelerating. Average earnings in real terms slumped by 0.6%, or 0.4% including bonuses. This will have a material effect on GDP growth in the second quarter.
The pay-inflation gap is widening despite record low unemployment, which is also a sign of structural problems for the UK economy. Total pay growth was running above 3% in the first half of 2015, when inflation was anchored at around zero. That sweet spot is well and truly over.
10.14am BST
10:14
Real pay is falling across the economy, points out Professor Geraint Johnes, Director of Research at the Work Foundation:
On the three month average measure, pay settlements fell from 2.3% in March to 2.1% in April [that’s including bonuses].
The fall in the single month measure is more dramatic – from 2.4% to 1.2% - though it should be noted that this measure is generally held to be less reliable.
On the single month measure, there were falls in average weekly earnings in both the finance and construction sectors in April. There is no sector of the economy in which wages are currently rising as fast as prices. The squeeze in real wages is back, and there seems to be little prospect of an immediate recovery.”
10.04am BST10.04am BST
10:0410:04
Maike Currie, investment director for personal investing at Fidelity International, has a few theories for why real wages are shrinking again.Maike Currie, investment director for personal investing at Fidelity International, has a few theories for why real wages are shrinking again.
One could be ‘slack in the labour market’ - which is economist speak for the fact that the jobs market isn’t working as well as it could.One could be ‘slack in the labour market’ - which is economist speak for the fact that the jobs market isn’t working as well as it could.
This is usually down to underemployment: people working part-time who want a full-time job or hidden unemployment: people who are not actively looking for work but who would rejoin the workforce if the jobs market were stronger.This is usually down to underemployment: people working part-time who want a full-time job or hidden unemployment: people who are not actively looking for work but who would rejoin the workforce if the jobs market were stronger.
Another factor is the problem of poor productivity. This isn’t unique to the UK and has been an issue in many developed world economies since the financial crisis. While most economists concur that slowing productivity is one of the most serious problems in their field today, few can agree on the cause and still less on the right response.Another factor is the problem of poor productivity. This isn’t unique to the UK and has been an issue in many developed world economies since the financial crisis. While most economists concur that slowing productivity is one of the most serious problems in their field today, few can agree on the cause and still less on the right response.
Whatever the reason, the situation looks pretty bad:Whatever the reason, the situation looks pretty bad:
9.59am BST9.59am BST
09:5909:59
TUC: Cost of living crisis loomsTUC: Cost of living crisis looms
The TUC, which represents Britain’s workers, is calling on the government to act now and end its curbs on public sector pay.The TUC, which represents Britain’s workers, is calling on the government to act now and end its curbs on public sector pay.
TUC General Secretary Frances O’Grady says the policy (which restricts pay rises to 1%) must go.TUC General Secretary Frances O’Grady says the policy (which restricts pay rises to 1%) must go.
“Real wages have fallen for the second month in a row. Unless the government gets its act together, we’ll soon be in the middle of another cost of living crisis.“Real wages have fallen for the second month in a row. Unless the government gets its act together, we’ll soon be in the middle of another cost of living crisis.
“Ministers must focus on delivering better-paid jobs across the UK. And it’s time to bin the artificial pay restrictions on nurses, midwives and other public sector workers.“Ministers must focus on delivering better-paid jobs across the UK. And it’s time to bin the artificial pay restrictions on nurses, midwives and other public sector workers.
“Britain needs a pay rise, not more pressure on household budgets.”“Britain needs a pay rise, not more pressure on household budgets.”
9.56am BST9.56am BST
09:5609:56
The fall in UK real wages is likely to hurt economic growth, warns Naeem Aslam of Think Markets.The fall in UK real wages is likely to hurt economic growth, warns Naeem Aslam of Think Markets.
It is the UK consumers who have been pulling the UK economy and if we see them slowing down, it surely means that economy cannot do wellIt is the UK consumers who have been pulling the UK economy and if we see them slowing down, it surely means that economy cannot do well
Brexit is certainly on the centre stage when it comes to this and I personally believe that investors are feeling the impact of this.Brexit is certainly on the centre stage when it comes to this and I personally believe that investors are feeling the impact of this.
9.53am BST9.53am BST
09:5309:53
Real pay shrinks: snap reactionReal pay shrinks: snap reaction
Dutch bank ING is alarmed by the slowdown in UK pay growth, at a time when Britain’s political future is so unclear.Dutch bank ING is alarmed by the slowdown in UK pay growth, at a time when Britain’s political future is so unclear.
#UK employment: Key story is 1.7% wage growth now considerably below 2.9% inflation. Political uncertainty not good for labour market $GBP#UK employment: Key story is 1.7% wage growth now considerably below 2.9% inflation. Political uncertainty not good for labour market $GBP
Bloomberg’s Sarah Rappaport is worried about the impact on the public:Bloomberg’s Sarah Rappaport is worried about the impact on the public:
Wage growth in the UK slowing to 1.7%, lagging further behind inflation. Effectively, this is squeezing U.K. householdsWage growth in the UK slowing to 1.7%, lagging further behind inflation. Effectively, this is squeezing U.K. households
Duncan Weldon of Resolution Group is concerned that the link between wages and unemployment appears to have broken down (with unemployment at a 42-year low, labour scarcity should drive earnings up).Duncan Weldon of Resolution Group is concerned that the link between wages and unemployment appears to have broken down (with unemployment at a 42-year low, labour scarcity should drive earnings up).
Joint highest employment rate since records began in 1971, joint lowest unemployment rate since 1975. But... terrible wage growth figures.Joint highest employment rate since records began in 1971, joint lowest unemployment rate since 1975. But... terrible wage growth figures.
Broad-based slowdown in nominal pay growth. pic.twitter.com/cjk5WpwDHY And again with the correct chart labels. Nominal pay slowdown by sector since December. pic.twitter.com/TWNxEyYT9q
Missing: the UK Philips Curve. If seen, please contact the Bank of England.Missing: the UK Philips Curve. If seen, please contact the Bank of England.
Updated
at 10.42am BST
9.49am BST9.49am BST
09:4909:49
Today’s report also shows that British workers are suffering the worst wage squeeze in two and a half years.Today’s report also shows that British workers are suffering the worst wage squeeze in two and a half years.
The ONS says:The ONS says:
Between February to April 2016 and February to April 2017 in real terms (that is, adjusted for consumer price inflation) total pay for employees in Great Britain fell by 0.4%, the lowest growth rate since July to September 2014.Between February to April 2016 and February to April 2017 in real terms (that is, adjusted for consumer price inflation) total pay for employees in Great Britain fell by 0.4%, the lowest growth rate since July to September 2014.
9.42am BST
09:42
ONS: Real pay is falling
If you include bonuses, average pay grew by 2.1%. That’s better than the 1.7% rise in regular pay, but still not enough to keep up with inflation.
The Office for National Statistics says:
Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) fell by 0.4% including bonuses, and fell by 0.6% excluding bonuses, compared with a year earlier.
9.34am BST
09:34
UK real wages squeeze worsens
Breaking! Basic pay in the UK economy grew by a meagre 1.7% year-on-year in the three months to April.
That’s much worse than expected, and also the lowest rise in regular pay since February 2016.
It means that real wages are shrinking at an even faster rate than feared -- inflation was 2.7% in April (and 2.9% in May!) so pay simply isn’t keep pace with the cost of living.
Today’s jobs report also shows that the unemployment rate remained at a 42-year low of 4.6%. The number of people out of work fell by 50,000 in the three months to April.
The employment total jumped by 109,000 during the quarter, to 31.954.
More to follow!
Updated
at 9.43am BST
9.27am BST
09:27
The pound is dipping back as City traders brace for the jobs report...
Stand by your desks! UK wages and unemployment data is due soon #GBP #GDP
9.12am BST
09:12
The pound should strengthen if today’s wage figures are less grim than feared.
Neil Wilson of ETX Capital says:
Unemployment is likely to be decent so the focus is on earnings. Stronger-than-expected wage growth could help support sterling a touch as it will help offset concerns that falling real wages is destroying consumer spending.
Yesterday’s inflation beat at 2.9% highlights the problems facing the economy so a sign that earnings are at least trying to keep pace will be welcome and allay concerns that consumers stop spending.
City economists expect that total pay rose by 2.4% in the three months to April - but only by 2.0% if bonuses are stripped out. We’ll find out if they’re right in 20 minutes...
9.01am BST
09:01
You can get up to speed on the state of Britain’s labour market with these charts from economist Rupert Seggins:
(1/5)The big labour market news was yesterday's inflation rise. Consensus is sub-inflation 2%y/y regular pay growth. New @ONS figs at 9:30 pic.twitter.com/dKiNjw60yX
(2/5) The bigger picture is that the past 10 years have been the worst for pay growth in 155 years. pic.twitter.com/YHBVGA1ayF
(3/5)Lots of attention on recent energy/food/sterling-fuelled inflation, but longer term, earnings and productivity are pretty tied together pic.twitter.com/H0NMDAxhMK
(4/5)The good news is that the UK employment juggernaut continues to rumble on. Consensus is for a 125k increase on the 3 months to January. pic.twitter.com/8eBaHpyp43
(5/5) Keep an eye on the claimant count rate. Consensus is for it to remain at 2.3%, but it has been rising of late. pic.twitter.com/QBqSeWpBPA
8.52am BST
08:52
The US dollar is under some pressure today ahead of the Federal Reserve decision, which is helping nudge the pound up.
With an interest rate hike today ‘priced in’, traders are focusing on the tone of the decision from the Federal Reserve’s Open Market Committee.
Kit Juckes of French bank Societe Generale expects the Fed to sound cautious about the long-term path for interest rates.
The FOMC’s response is likely to be a ‘dovish hike’ and that’s priced in, to a large degree. Uncertain about how much slack there is in the economy or the labour market, FOCM members are inclined to want to ‘normalise’ rates while they have the chance, but they seem very pragmatic about the longer-term outlook.
So more likely to raise rates now, without overlay hawkish commentary, and then lay the groundwork for another hike in the autumn if markets don’t take fright in the weeks ahead.
8.38am BST
08:38
In the City, the FTSE 250 index - which contains medium-sized UK-focused firms - has jumped by 0.5% in early trading.
Housebuilder Bellway is the biggest riser, up 3.6%, after reporting that customer demand for new homes is still strong.
The blue-chip FTSE 100 index is flat, although its housebuilders (Taylor Wimpey, Barratt and Persimmon) are all rising.
8.15am BST
08:15
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8.13am BST
08:13
Pound pushes towards $1.28
Sterling is rising in early trading, hitting its highest level since Britain’s shock general election results landed.
The pound has gained a third of a cent to $1.278, as traders brace for this morning’s UK jobs report.
It’s also a little higher against the euro, at just below €1.14.
The possibility that Britain could now seek a ‘softer Brexit’ from the European Union is helping the pound recover.
FXTM research analyst Lukman Otunuga explains:
Currency investors remained cautiously optimistic over a softer Brexit following last week’s UK election outcome, resulting in a hung parliament.
Although the political uncertainty in the UK and pending Brexit negotiations are still in focus, much attention will be directed towards the UK jobs report this morning.
7.51am BST
07:51
The agenda: UK jobs report and Federal Reserve decision
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s cost of living squeeze will be dragged back into the spotlight today, when the latest employment data is released.
City economists fear today’s figures will show that wages are falling further behind inflation, which has been driven up to 2.9% in May by the weak pound (as we learned yesterday).
Basic pay rises (excluding bonuses) are expected to have fallen to 2.0% in the three months to April. That would mean real wages have kept falling this year, bringing more pain to struggling families across the country.
On a more positive note, the unemployment rate may remain at a 42-year low (last month it fell to 4.6% , the lowest since 1975), and the employment total probably kept rising in the last quarter.
RBC Capital Markets say:
Unless last month’s gains somehow turn out to be a total blip, it wouldn’t be too surprising if the level of employment rises again by close to a triple-digit number of thousands in the three months to April.
The rotation of workers out of part-time roles into full-time employment is now an established theme and if we see this trend once more it would imply that slack is being partially eroded as a result of reduced ‘underemployment’.
It’s also a big day for the US economy. America’s central bank, the Federal Reserve, is widely expected to raise interest rates today - to a target range of 1% to 1.25% (from 0.75% to 1%).
Fed chair Janet Yellen will then face the press and give her views on the state of the economy. Wall Street experts predict she’ll try to squash speculation that the Fed is too hawkish.
As Lew Alexander, chief economist at Nomura, put it (via Marketwatch):
“We do expect her to try to be somewhat forceful in conveying...to market participants that their skepticism over hikes after the June meeting may not be warranted.”
Tomorrow at 2:30 p.m. ET: Chair #Yellen hosts live #FOMC press conference: https://t.co/AknBNh2ef4 pic.twitter.com/mOjT9owfyr
We also get new eurozone unemployment figures, plus new retail sales and inflation statistics from America.
European stock markets are expected to be flattish, as investors hunker down ahead of the Fed decision tonight.
Opening Call at @LCGTrading #FTSE -4 points at 7496#DAX +22 points at 12787#CAC +16 points at 5277#EuroStoxx +4 points at 3561
Here’s the agenda:
9.30am BST: UK labour market report
10am BST: Eurozone employment report for Q1 2017
1.30pm BST: US inflation report for May
1.30pm BST: US retail sales for May
7pm BST: US Federal Reserve interest rate decision
7.30pm BST: Fed chair Janet Yellen’s press conference
Updated
at 8.07am BST