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The Guardian
2 days ago
- Business
- The Guardian
Reeves will hope weaker wage growth enables more interest rate cuts
The downturn in the UK's jobs market appears to be gathering pace, but the chancellor, Rachel Reeves, will hope that means slower wage growth will open the way to more interest rate cuts. Unemployment has continued to rise, the Office for National Statistics (ONS) said, ticking up to 4.6% in the three months to April, from 4.5% in the three months to March. Vacancies declined in the three months to May, the 35th successive fall – with some evidence that the downturn is accelerating, as rising employment costs, including the higher minimum wage and Reeves's £25bn employer national insurance increase, start to bite. The ONS said the 63,000 fall in vacancies was the sharpest since mid-2023, reflecting survey evidence that 'some firms may not be recruiting new workers or replacing workers who have left'. Payrolled employment – a more timely estimate, but one the ONS suggests treating with caution – declined by 109,000, or 0.4%, in May. The governor of the Bank of England, Andrew Bailey, has made clear that he sees the labour market – and specifically wage growth – as the key determinant of whether interest rates can come down, from their elevated level of 4.25%. Speaking to MPs on the cross-party Treasury select committee last week, Bailey said the question of whether pay settlements would decline through this year was, 'a crucial judgment going forward'. One dovish member of the Bank's nine-member monetary policy committee (MPC), Swati Dhingra, suggested she feared keeping rates high for such an extended period was damaging the economy. Bailey is likely to have been modestly reassured, then, to see wage growth slipping in the three months to April, to 5.2% for regular pay, down from 5.5% in the three months to March. The MPC acknowledges that interest rates are squeezing economic growth – but are nervous about cutting further until they are confident lower rates won't unleash a fresh surge of inflation. Thomas Pugh, an economist at the consultancy RSM UK, suggested the Bank is likely to continue to hold off, for now: 'a rising unemployment rate, another slump in payroll numbers, fewer vacancies and slowing wage growth paints a pretty clear picture of a rapidly cooling labour market. However, with private sector pay growth still running at almost double the rate the MPC is comfortable with, further policy easing will be gradual.' Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion Along with many analysts, he believes a rate cut could come in August – continuing with the Bank's pace of quarterly reductions. In her speech in Rochdale last week, highlighting £15bn planned investment in buses, trams and other transport links, Reeves claimed the credit for the four rate cuts the Bank has already made since she arrived in No 11, arguing her strict fiscal rules had helped. 'It is the stability that my rules supports, and the choices we made as a government in October, that have helped facilitate four cuts to interest rates since the last election – saving £650 a year for a family taking out a new, typical two-year fixed-rate mortgage,' she told bored-looking bus workers. The Treasury knows that lower rates are a key determinant of the cost of living, as well as feeding through to yields on government bonds. Reeves will be hoping wage growth continues to cool off enough to persuade Bailey and his colleagues to cut again – most likely in August – but the Treasury will also be watching nervously, in case the downturn in the jobs market accelerates.
Yahoo
5 days ago
- Business
- Yahoo
The labor market's latest puzzling sign gives the Fed more leeway to wait
The US labor market is cooling. The president keeps clamoring for the Federal Reserve to cut interest rates. But Wall Street still doesn't think it's happening anytime soon. Currently, markets are not pricing in more than a 50% chance of a Fed rate cut until the central bank's September meeting, per the CME FedWatch Tool. By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy One reason why appeared in two different data releases over the past week: Wage growth remains particularly resilient. The May jobs report showed average hourly earnings rose 0.4% over the last month and 3.9% over the prior year, higher than the 0.2% monthly wage growth seen in April. Meanwhile, data from ADP showed wages for workers in the private sector who changed jobs grew 7%, while wages for those who stayed in the same job grew 4.5%. Both were unchanged from the month prior. As our Chart of the Week shows, in the past six months, wage growth for job stayers has fallen just 0.2 percentage points while pay gains for job changers have actually increased by the same amount. The gap has widened — and stayed that way. So when the president took to social media to say the smallest private payroll gain in over a year was a reason "Powell must now LOWER THE RATE," ADP chief economist Nela Richardson pointed to wages. "The labor market isn't collapsing," Richardson said. "Wages are robust, but they're not triggering inflation. Hiring is slow, but it's not leading to outside layoffs. So in that sense, there's nothing in the labor market that points in any direction [for the Fed] strongly." Such is the "totality" of the data. In a note titled 'May-day? More like Pay-day!" Bank of America US economist Shruti Mishra remarked that solid wage income growth is 'supportive of consumption but will also likely keep the Fed in their inflation fighting stance.' The chart also reveals a key piece about the state of the US economy and consumer. The great resignation may be over, but leaving a job is still providing workers with pay bumps. And those who stay are still seeing wages growing above the 2.3% headline inflation increase seen in April. This doesn't help those who are struggling to find work. And as we highlighted last week, there are plenty of displaced workers right now, particularly recent college graduates. But the fact is, the statement from Fed Chair Jerome Powell in January that it's "all good" if you have a job remains true. That's a key piece of why recession risks have fallen amid the tariff rollback of the past month and the stock market has soared back within striking distance of all-time highs. "As long as wages are robust, layoffs are low, and consumers can keep spending, I think that even if the economy slows for a period of time, it is resilient enough to rebound," Richardson said. Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Click here for in-depth analysis of the latest stock market news and events moving stock prices Sign in to access your portfolio
Yahoo
5 days ago
- Business
- Yahoo
The labor market's latest puzzling sign gives the Fed more leeway to wait
The US labor market is cooling. The president keeps clamoring for the Federal Reserve to cut interest rates. But Wall Street still doesn't think it's happening anytime soon. Currently, markets are not pricing in more than a 50% chance of a Fed rate cut until the central bank's September meeting, per the CME FedWatch Tool. By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy One reason why appeared in two different data releases over the past week: Wage growth remains particularly resilient. The May jobs report showed average hourly earnings rose 0.4% over the last month and 3.9% over the prior year, higher than the 0.2% monthly wage growth seen in April. Meanwhile, data from ADP showed wages for workers in the private sector who changed jobs grew 7%, while wages for those who stayed in the same job grew 4.5%. Both were unchanged from the month prior. As our Chart of the Week shows, in the past six months, wage growth for job stayers has fallen just 0.2 percentage points while pay gains for job changers have actually increased by the same amount. The gap has widened — and stayed that way. So when the president took to social media to say the smallest private payroll gain in over a year was a reason "Powell must now LOWER THE RATE," ADP chief economist Nela Richardson pointed to wages. "The labor market isn't collapsing," Richardson said. "Wages are robust, but they're not triggering inflation. Hiring is slow, but it's not leading to outside layoffs. So in that sense, there's nothing in the labor market that points in any direction [for the Fed] strongly." Such is the "totality" of the data. In a note titled 'May-day? More like Pay-day!" Bank of America US economist Shruti Mishra remarked that solid wage income growth is 'supportive of consumption but will also likely keep the Fed in their inflation fighting stance.' The chart also reveals a key piece about the state of the US economy and consumer. The great resignation may be over, but leaving a job is still providing workers with pay bumps. And those who stay are still seeing wages growing above the 2.3% headline inflation increase seen in April. This doesn't help those who are struggling to find work. And as we highlighted last week, there are plenty of displaced workers right now, particularly recent college graduates. But the fact is, the statement from Fed Chair Jerome Powell in January that it's "all good" if you have a job remains true. That's a key piece of why recession risks have fallen amid the tariff rollback of the past month and the stock market has soared back within striking distance of all-time highs. "As long as wages are robust, layoffs are low, and consumers can keep spending, I think that even if the economy slows for a period of time, it is resilient enough to rebound," Richardson said. Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Click here for in-depth analysis of the latest stock market news and events moving stock prices
The Guardian
04-06-2025
- Business
- The Guardian
B&M sales and profits fall as lower-income consumers miss out on pay rises
Lower-income consumers missing out on wage rises have been blamed by one of Britain's biggest discount retailers for a slide in its sales and profits. B&M, which issued a profit warning in February, said consumers had been more cautious about their spending over the past year. It added its sales had fallen because of 'limited real wage growth', particularly among its 'core lower-income consumer groups' who had previously received emergency cost of living support payments from the government, which ended in February 2024. The retailer, which sells everything from cleaning products and pet food to garden furniture and inflatable hot tubs, said comparable sales at its more than 740 UK stores fell by 3.1% in the 12 months to the end of March. The group's pre-tax profit fell by 13.2% to £431m as a result of higher depreciation and increased interest costs as well as the 'challenging UK retail trading environment'. Shares in the company dropped by as much as 7% during morning trading on Wednesday after the results, as the company admitted its 'operational execution could have been better'. The UK's largest bakery chain, Greggs, said in May its sales of iced drinks and snacks were on the rise, even as consumers remained cautious, while it was benefiting from the rise in consumers' disposable income, helped by the April increase in the legal minimum wage. Average wages across the economy increased by 6.4% in the year to April, according to the most recent official payroll data from the Office for National Statistics, at a time when inflation was 3.5%. Meanwhile, hotels and restaurant staff managed to secure an 8.5% increase in median pay over the year to April, according to the ONS, while retail workers were paid 6.9% more over the same period. Recent public sector pay awards were also higher than ministers had previously said they could afford. B&M – currently being led by its finance director, after the departure of its chief executive, Alex Russo, this year and before the arrival of its new boss in mid-June – should have been winning over new customers amid a squeeze on consumers' finances, according to Russ Mould, the investment director at broker AJ Bell. 'The discount retailer blamed challenging market conditions, yet its value-led business model should have thrived in a period where consumers were watching their pennies,' Mould said. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion 'It should have mopped up extra business from people trading down from more expensive options, while also being a shop of choice for cash-strapped individuals wanting bargains.' Among the bargain-lovers known to shop at B&M are the former prime minister Boris Johnson and his wife, Carrie, who recently revealed on social media they had taken their new baby to their 'favourite shop'. Meanwhile, the retailer WH Smith, which is due to disappear from British high streets in the coming weeks, reported a 7% increase in sales at its travel shops in railway stations, airports and hospitals in the 13 weeks to the end of May. The company, which agreed to sell its 480 high street stores in March to the Hobbycraft owner, Modella Capital, in a deal worth £76m, said it expected to complete the sale at the end of June. WH Smith said its remaining travel business was on track to meet its full-year financial targets, and said it was 'well positioned as we enter our peak summer trading period'.
Yahoo
23-05-2025
- Business
- Yahoo
UK unemployment rises to highest in nearly four years
The unemployment rate in the UK has risen to its highest level in almost four years, according to official figures, as the jobs market continues to slow. The Office for National Statistics (ONS) said the rate was 4.5% in the first three months of this year, up 0.2% on the previous quarter and the highest reading since summer 2021. Unemployment is measured using the ONS's widely criticised labour force survey, which has suffered from collapsing response rates – although the ONS published an update alongside Tuesday's data citing 'clear improvement'. Related: UK wage growth slows and vacancies drop, as labour market cools – business live The higher joblessness rate emerged in a slew of UK labour market data released on Tuesday that pointed to a slowdown, amid increases to employer national insurance contributions (NICs) and the national living wage. The number of vacancies in the economy was down 5.3% in the three months to the end of April, the ONS said. There were 761,000 job vacancies in that period, a 131,000 drop on a year ago, with the construction sector experiencing the biggest decline. Interactive Pay growth also weakened, the ONS said, with regular earnings up 5.6% in the three months to March, down from 5.9% in the previous three-month period – although that remains high by historic standards. Modestly weaker wage growth is likely to reassure the Bank of England's monetary policy committee, which cut interest rates by a quarter point last week to 4.25% but has expressed concern about the continued strength of pay. Thomas Pugh, an economist at the consultancy RSM UK, said: 'Overall, the labour market is clearly cooling, which should feed into slowing wage growth through this year. But it isn't collapsing. The hawks on the MPC will still be too concerned about strong wage growth to consider going for another rate cut in June.' The Bank of England's chief economist, Huw Pill, underlined his concerns about wage growth on Tuesday, suggesting it might mean rates have to stay higher for longer. Speaking at a conference at the London School of Economics, he said he was concerned about the upside risks to inflation, which might get stuck above the Bank's 2% target and could 'mean that the response of monetary policy, in order to ensure that we get back to our target within a reasonable cycle, needs to be somewhat more aggressive or more persistent in itself'. In another sign of a slowing labour market, Tuesday data showed a decline in the number of payrolled jobs, by 47,000, or 0.2%, between February and March – although the ONS said the overall employment rate, measured using the labour force survey, was 'largely unchanged' at 75%. Stephen Evans, the chief executive of the Learning and Work Institute, said: 'The labour market continues to slow, with the largest employment falls seen in retail and hospitality.' He added that these were also the sectors where pay growth had been fastest, as the minimum wage rise comes in. 'Time will tell whether this is an indicator of a broader slowdown or a temporary effect,' he said. The ONS said the economic inactivity rate, which has been a consistent concern of policymakers, was slightly lower, at 21.4% of the working age population – although it remains above the levels seen before the Covid pandemic. The Bank of England has been monitoring closely the impact on jobs and salaries of Rachel Reeves's £25bn increase in employer NICs. The rise, which took effect last month, came alongside a 6.7% increase in the national living wage, prompting some business lobby groups to warn about rising payroll costs. Michael Stull, the managing director of the recruitment company ManpowerGroup UK, said: 'The latest labour market data confirms the sentiment of most British employers, whose confidence remains stunned against a backdrop of significant national change and global uncertainty.' The ONS is facing an independent inquiry into longstanding problems with the quality of its data, including the labour force survey. The national statistician, Ian Diamond, stepped down last week, citing health concerns.
