Latest news with #EYItemClub
The Star
2 days ago
- Business
- The Star
Pressure on UK living standards poses new danger for Starmer
FILE PHOTO: British Prime Minister Keir Starmer looks on during his meeting with the Crown Prince of Bahrain, Prince Salman bin Hamad Al Khalifa (not in picture), at 10 Downing Street, London, Britain June 19, 2025. Jordan Pettitt/Pool via REUTERS/File Photo LONDON: The recovery in UK living standards is coming to an end, a potential moment of peril for Prime Minister Keir Starmer who has hailed the recent strength of wage growth as a sign he is delivering on his pledge to make 'working people' better off. When Labour took office in July 2024, pay was rising at well over 5% a year - comfortably outstripping inflation of 2.2%. However, the gap is fast narrowing, with economists predicting it will all but disappear this year as a fresh spike in consumer prices coincides with a cooling labour market. Real wages grew just 1.5% year-on-year in the second quarter, according to figures from the Office for National Statistics. Deutsche Bank expects a low point of 0.5% at the end of the year, while Santander is forecasting an even sharper slowdown to 0.2%. That would be the weakest growth since mid-2023 when households were still reeling from the cost-of-living crisis. Figures tomorrow are forecast to show that rising food bills helped lift inflation to 3.8% in July, the highest since January 2024, and the Bank of England expects 4% in September. Meanwhile, private-sector pay growth is below 5% for the first time since early 2022, with a further slowdown expected. 'Households will be more dependent on household savings to buffer against the oncoming wave of price rises,' said Sanjay Raja, chief UK economist at Deutsche Bank. The squeeze comes at a time when Britons are also bracing for further tax increases in the autumn budget as Chancellor of the Exchequer Rachel Reeves tries to fill an estimated £40bil (US$54bil) hole in the public finances. Labour swept to power on pledge to lift living standards by the end of the Parliament, only to see its ratings collapse over issues ranging from tax rises and spending cuts to irregular immigrants arriving on small boats. It has been trailing behind Nigel Farage's populist Reform UK party in national opinion polls for months. Price pressures are likely to stay elevated even as the labour market slows as firms continue to be squeezed by decisions to raise payroll taxes and the minimum wage in April. An EY Item Club analysis shows that restricting pay awards provides only limited relief from surging employment costs, meaning many firms will still have to raise prices. For example, for workers earning £45,000 and £75,000 a year, employers offering a below-inflation rise of 3% still face an approximate 5% increase in payroll bills. 'Given April's change in employers' National Insurance Contributions, most companies will still have seen little drop-off in labour cost growth, despite offering smaller pay rises,' said Matt Swannell, chief economic adviser to the EY Item Club. A separate survey conducted by the Chartered Management Institute showed that companies are more likely to pass on cost increases than cut wage growth. A quarter of private-sector firms have increased their prices, while only one in five have cut wage growth in response to April's measures. For Starmer, delivering significant improvements to living standards over the next four years will be difficult absent a step-change in productivity growth that has eluded successive governments since the global financial crisis. The risk is that consumers, who continue to save a bigger share of their income than before the pandemic, remain in cautious mode and hold back the wider economy. 'Stagnant real regular pay growth by year-end should keep household consumption on the back foot, allowing the Bank of England to cut rates in February and April once the inflation spike is safely in the rear-view mirror,' said Gabriella Willis, UK economist at Santander Corporate & Investment Banking. — Bloomberg
Mint
3 days ago
- Business
- Mint
Pressure on UK Living Standards Poses New Danger for Starmer
The recovery in UK living standards is coming to an end, a potential moment of peril for Prime Minister Keir Starmer who has hailed the recent strength of wage growth as a sign he is delivering on his pledge to make 'working people' better off. When Labour took office in July 2024, pay was rising at well over 5% a year — comfortably outstripping inflation of 2.2%. However, the gap is fast narrowing, with economists predicting it will all but disappear this year as a fresh spike in consumer prices coincides with a cooling labor market. Real wages grew just 1.5% year-on-year in the second quarter, according to figures from the Office for National Statistics. Deutsche Bank expects a low point of 0.5% at the end of the year, while Santander is forecasting an even sharper slowdown to 0.2%. That would be the weakest growth since mid-2023 when households were still reeling from the cost-of-living crisis. Figures on Wednesday are forecast to show that rising food bills helped lift inflation to 3.8% in July, the highest since January 2024, and the Bank of England expects 4% in September. Meanwhile, private-sector pay growth is below 5% for the first time since early 2022, with a further slowdown expected. 'Households will be more dependent on household savings to buffer against the oncoming wave of price rises,' said Sanjay Raja, chief UK economist at Deutsche Bank. The squeeze comes at a time when Britons are also bracing for further tax increases in the autumn budget as Chancellor of the Exchequer Rachel Reeves tries to fill an estimated £40 billion hole in the public finances. Labour swept to power on pledge to lift living standards by the end of the Parliament, only to see its ratings collapse over issues ranging from tax rises and spending cuts to irregular immigrants arriving on small boats. It has been trailing behind Nigel Farage's populist Reform UK party in national opinion polls for months. Price pressures are likely to stay elevated even as the labor market slows as firms continue to be squeezed by decisions to raise payroll taxes and the minimum wage in April. An EY Item Club analysis shows that restricting pay awards provides only limited relief from surging employment costs, meaning many firms will still have to raise prices. For example, for workers earning £45,000 and £75,000 a year, employers offering a below-inflation rise of 3% still face an approximate 5% increase in payroll bills. 'Given April's change in employers' National Insurance Contributions, most companies will still have seen little drop-off in labor cost growth, despite offering smaller pay rises,' said Matt Swannell, chief economic advisor to the EY Item Club. A separate survey conducted by the Chartered Management Institute showed that companies are more likely to pass on cost increases than cut wage growth. A quarter of private-sector firms have increased their prices, while only one in five have cut wage growth in response to April's measures. For Starmer, delivering significant improvements to living standards over the next four years will be difficult absent a step-change in productivity growth that has eluded successive governments since the global financial crisis. The risk is that consumers, who continue to save a bigger share of their income than before the pandemic, remain in cautious mode and hold back the wider economy. 'Stagnant real regular pay growth by year-end should keep household consumption on the back foot, allowing the Bank of England to cut rates in February and April once the inflation spike is safely in the rear-view mirror,' said Gabriella Willis, UK economist at Santander Corporate & Investment Banking. This article was generated from an automated news agency feed without modifications to text.
Yahoo
06-08-2025
- Business
- Yahoo
Bank of England ready to cut interest rates as jobs market slows, experts say
Borrowing costs are set to ease further with the Bank of England poised to cut interest rates for the fifth time in a year, experts think. The Bank's Monetary Policy Committee (MPC) is widely expected to reduce the base rate by 0.25 percentage points to 4% on Thursday. This would mark the fifth reduction since August last year, when rates started steadily coming down from a peak of 5.25%. It could release pressure for some mortgage holders and home buyers amid hopes that cheaper deals will enter the market if the Bank's base rate is lowered further. Economists think a slowdown in the UK jobs market and stagnant economic growth could prompt the MPC to ease monetary policy. Official data from the Office for National Statistics (ONS) showed the rate of UK unemployment increased to 4.7% in the three months to May – the highest level for four years. And average earnings growth, excluding bonuses, slowed to 5% in the period to May to its lowest level for almost three years. Bank of England Governor Andrew Bailey said earlier this month that the Bank would be prepared to cut rates if the jobs market showed signs of weakening. Furthermore, ONS data showed the UK economy contracted in both April and May, further putting pressure on policymakers to ease borrowing costs. Matt Swannell, chief economic advisor to the EY Item Club, said a 0.25 percentage point cut on Thursday was 'almost certain' amid a 'sluggish' economy. Recent survey data, watched closely by economists, has indicated that firms are grappling with higher labour costs and wider geopolitical uncertainty weighing on investment plans, he said. 'With the MPC balancing signs of fragility in the labour market against evidence of lingering inflationary pressure, the committee will likely signal that further gradual interest rate cuts remain appropriate,' Mr Swannell predicted. Sanjay Raja, senior economist for Deutsche Bank, said the economy has been 'weaker than the MPC anticipated' since it last published a Monetary Policy Report in May. The jobless rate is slightly higher, wage growth has weakened, and redundancies have been elevated, he said. However, he said the MPC will be 'between a rock and a hard place', likely leading to a split vote within the nine-person committee. He predicts two members voting to keep the level at 4.25%, and another two opting for a larger 0.5 percentage point cut. Other economists said they will be watching out for any comments from the Bank about the future path for interest rate cuts, which is more uncertain given the balance of risks to the economy. Some policymakers may be more concerned by recent inflation data, with prices rising at the fastest rate in 15 months in June. Rising food inflation has put pressure on the overall rate in recent months. Sign in to access your portfolio
The Independent
06-08-2025
- Business
- The Independent
Bank of England ready to cut interest rates as jobs market slows, experts say
Borrowing costs are set to ease further with the Bank of England poised to cut interest rates for the fifth time in a year, experts think. The Bank's Monetary Policy Committee (MPC) is widely expected to reduce the base rate by 0.25 percentage points to 4% on Thursday. This would mark the fifth reduction since August last year, when rates started steadily coming down from a peak of 5.25%. It could release pressure for some mortgage holders and home buyers amid hopes that cheaper deals will enter the market if the Bank's base rate is lowered further. Economists think a slowdown in the UK jobs market and stagnant economic growth could prompt the MPC to ease monetary policy. Official data from the Office for National Statistics (ONS) showed the rate of UK unemployment increased to 4.7% in the three months to May – the highest level for four years. And average earnings growth, excluding bonuses, slowed to 5% in the period to May to its lowest level for almost three years. Bank of England Governor Andrew Bailey said earlier this month that the Bank would be prepared to cut rates if the jobs market showed signs of weakening. Furthermore, ONS data showed the UK economy contracted in both April and May, further putting pressure on policymakers to ease borrowing costs. Matt Swannell, chief economic advisor to the EY Item Club, said a 0.25 percentage point cut on Thursday was 'almost certain' amid a 'sluggish' economy. Recent survey data, watched closely by economists, has indicated that firms are grappling with higher labour costs and wider geopolitical uncertainty weighing on investment plans, he said. 'With the MPC balancing signs of fragility in the labour market against evidence of lingering inflationary pressure, the committee will likely signal that further gradual interest rate cuts remain appropriate,' Mr Swannell predicted. Sanjay Raja, senior economist for Deutsche Bank, said the economy has been 'weaker than the MPC anticipated' since it last published a Monetary Policy Report in May. The jobless rate is slightly higher, wage growth has weakened, and redundancies have been elevated, he said. However, he said the MPC will be 'between a rock and a hard place', likely leading to a split vote within the nine-person committee. He predicts two members voting to keep the level at 4.25%, and another two opting for a larger 0.5 percentage point cut. Other economists said they will be watching out for any comments from the Bank about the future path for interest rate cuts, which is more uncertain given the balance of risks to the economy. Some policymakers may be more concerned by recent inflation data, with prices rising at the fastest rate in 15 months in June. Rising food inflation has put pressure on the overall rate in recent months.
South Wales Guardian
05-08-2025
- Business
- South Wales Guardian
Service industry growth slows as firms hit by ‘sluggish' demand
The S&P Global UK services PMI survey scored 51.8 in July, dipping from a reading of 52.8 in June. Any reading above 50 means the sector is growing while a score below means it is contracting. It was stronger than expected by economists, who had predicted a reading of 51.2. The influential survey nevertheless pointed to slowing business activity in the face of 'sluggish demand at home and abroad' amid another fall in new work for businesses in the sector. Companies reported the fastest decrease in their order books for around two-and-a-half years. Tim Moore, economics director at S&P Global Market Intelligence, said: 'UK service providers recorded a third consecutive monthly rise in business activity but they were unable to maintain the growth rate achieved in June. 'Risk aversion and low confidence among clients were the main reasons provided for sluggish sales pipelines, alongside an unfavourable global economic backdrop. 'Hiring trends were especially subdued, with total workforce numbers decreasing to the greatest extent since February.' Surveyed firms cautioned that 'elevated global economic uncertainty' contributed to subdued confidence among clients and increased headwinds. The fresh figures also showed another reduction in staffing levels, which firms linked to a combination of weaker demand and higher costs. Matt Swannell, chief economic adviser to the EY Item Club, said: 'The underlying pace of growth appears sluggish and is expected to remain that way. 'The services survey also reported a slight pickup in output price inflation in July, as businesses sought to pass on the impact of higher labour costs, although a 0.25 percentage point rate cut at the MPC's (Monetary Policy Committee) meeting later this week is almost certain.'
