Putin is expected to restart gas flows through the crucial Nord Stream gas pipeline later this week in a move that would grant much-needed relief to beleaguered Germany.
The pipeline, which carries more than a third of Russian gas exports to the EU, was halted last week for 10 days of annual maintenance.
Earlier today Johannes Hahn, European Budget Commissioner, said the bloc was not expecting the pipeline to restart once the work was completed – deepening the energy crisis across the continent.
But Reuters reported that Russia will resume operations once the work is completed on Thursday, albeit below full capacity of 160m cubic metres per day.
Kremlin-controlled energy giant Gazprom cut flows through the pipeline to 40pc of normal capacity last month, prompting countries including Germany to rush to find alternative supplies.
Royal Mail workers vote in favour of industrial action
Some 115,000 Royal Mail employees and members of the Communication Workers Union have voted in favour of to strike in a dispute over pay.
Bank of England mulls raising interest rates by 0.5 percentage points
The Monetary Policy Committee may double-hike interest rates at its next meeting, according to a speech Andrew Bailey is expected to deliver.
Speaking at the Mansion House financial and professional services dinner tonight, he will say: “At the MPC’s last meeting we adopted language which made clear that if we see signs of greater persistence of inflation, and price and wage setting would be such signs, we will have to act forcefully.
“In simple terms this means that a 50 basis point increase will be among the choices on the table when we next meet. 50 basis points is not locked in, and anyone who predicts that is doing so based on their own view.”
Wise on the rise after strong first quarter
Online payments firm Wise has posted a 51pc jump in revenues to £185.9m over the first quarter as strong growth in the US helped to drive growth in customer numbers.
The group saw a 49pc rise in transaction volumes as more than £24bn was moved across borders, despite economic volatility.
Higher volumes were driven by increased demand for its Wise Account and Wise Business services over the period.
That’s all from me for today – thanks for following! Giulia Bottaro will take over from here.
Partners at elite City law firm take home record £2m
Clifford Chance has become the first elite Magic Circle law firm to break the £2m pay barrier for its partners after awarding them an inflation-busting 10pc rise.
Simon Foy reports:
The firm’s equity partners will take home a record average of almost £2.1m each after revenues jumped by 8pc to nearly £2bn on the back of a surge in dealmaking post-pandemic.
The move means Clifford Chance has become the highest paying firm out of London’s five “magic circle” groups, overtaking Allen & Overy which last week boosted average partner pay to £1.9m.
It comes as UK firms face an arms race with US entrants to the British legal market who are leading the charge in aggressively hiking pay packets to record highs.
Last week, Akin Gump, a US firm, boosted the starting salaries for its London-based junior solicitors to a whopping £179,000, significantly higher than its UK-headquartered rivals with Clifford Chance offering £125,000 for solicitors at the same level.
Charles Adams, Clifford Chance’s global managing partner, said the firm continued to increase its market share in the 12 months to April and grew in “priority geographies” such as the Americas.
Avanti West Coast cancels all trains due to heat
Avanti West Coast has cancelled all train services due to the extreme heat.
The company, which runs services from London Euston to Birmingham, Manchester, Liverpool, Glasgow and Edinburgh, said all trains had been withdrawn for the rest of the day due to “multiple incidents across the network”.
Fans, paddling pools and burgers: Brits stock up for heatwave
Sales of fans, ice cream, paddling pools and burgers have rocketed as Brits splashed out on summer essentials during the heatwave.
Waitrose has had its biggest week for ice creams, with sales up 36pc year on year, while John Lewis’s sales of fans and air conditioning units are up 709pc on last year.
Asda sold at least 4.5m sausages and 1.4m burgers last week, while charcoal sales increased by 400pc, according to PA.
Sales of ready-to-drink spirits in Asda were up 72pc compared to an average week, while fan sales increased by 1,300pc.
Asda said its paddling pool range saw sales increase by 1,000pc compared to the same time the previous week.
Waitrose also said sales of premium ice cream were up 45pc.
Ocado Retail boss steps down amid cost-of-living crisis
The chief executive of Ocado’s online grocery arm is stepping down just months after warning that revenue would be impacted by the cost-of-living crisis.
Melanie Smith, who leads Ocado Retail, a joint venture with Marks & Spencer, will leave the company at the end of August.
She will be temporarily replaced by deputy chief executive Lawrence Hene while the company looks for a replacement.
Ms Smith has held the top job since the venture with M&S began in 2019 and was one of the retail sector’s few female leaders in Europe.
Earlier this year Ocado Retail said it was starting to cut costs after first quarter sales dropped.
EU to sanction Russian lender Sberbank
The EU is gearing up to add Sberbank and top Russian metals baron to its sanctions list.
Russia’s largest lender, which has already been excluded from the Swift payments system, will be sanctioned alongside Andrei Kozitsyn, head of zinc and copper giant UMMC.
The 48 individuals and nine entities added to the list also include a motorcycle club, actors, politicians and family members of previously sanctioned businesspeople, Reuters reports.
Adding Sberbank would freeze its assets in the West.
However, rules will be revised to ensure sanctioned Russian banks can use some frozen funds to trade food and fertilisers – a measure meant to eliminate inadvertent hurdles to global food trade.
Wall Street rises as earnings pick up pace
Wall Street’s three main indices have opened higher as earnings season picks up pace, with investors keeping an eye on the impact of the stronger dollar.
Johnson & Johnson trimmed its annual profit outlook due to the surging US economy, while IBM warned of a nearly $3.5bn hit.
Still, stocks were largely higher, led by gains for major tech companies.
The benchmark S&P 500 rose 0.8pc, while the Dow Jones was up 0.3pc. The tech-heavy Nasdaq gained 1.4pc.
Hotel Chocolat shares in meltdown after profit warning
We’re all feeling the heat today, but none more so than Hotel Chocolat.
Shares in the high-end chocolatier crashed as much as 51pc after it warned on profits and scaled back its plans for global expansion.
The retailer said it was feeling the pinch from rising costs and the a squeeze on household budgets. It also said it will take a hefty cost from shutting its last remaining store in the US.
Hotel Chocolat shares fell to as little as 114p today – dipping below the price of its 2016 stock market float for the first time ever. The company has lost three-quarters of its market value in 2022.
Manolo Blahnik defeats China in 22-year legal battle over trademark
Manolo Blahnik has emerged victorious in a 22-year legal battle that prevented the luxury British shoemaker from selling in China.
Laura Onita has the story:
The country’s highest court has now invalidated a trademark using the shoemaker’s name that has been owned by a Chinese businessman following years of legal wranglings.
Mr Blahnik, who started his eponymous business in London in 1971 and whose shoes were made famous by the TV show Sex and the City, called the decision “a remarkable result”.
The rare ruling paves the way for the brand’s expansion across the country, one of the world’s fastest-growing luxury markets.
Mr Blahnik’s niece, Kristina, who is chief executive, added: “This is a meaningful victory. The company will continue to vigorously protect its trademarks worldwide in the interests of my uncle, our customers and our business.”
EasyJet warns of further travel chaos
The boss of easyJet has warned he “can’t guarantee” that passengers will avoid more disruption for the rest of the summer.
Johan Lundgren said the budget airline had introduced “a number of measures” to avoid a repeat of the chaos seen during the Easter and Jubilee periods, when thousands of flights were cancelled.
The easyJet chief said schedule reductions across the airline industry would “help” but factors “outside our control” could affect flights.
Speaking to PA news agency at the Farnborough Air Show in Hampshire, Mr Lundgren said: “We’re operating up to 1,700 flights a day.
“We’re doing it with the level of operational performance that you would have seen in 2019.
“But having said that, we can’t guarantee that there won’t be things that sit outside our control that could affect our customers, as they will affect any other airlines’ customers as well.”
The summer holidays for most children in England and Wales start this week.
Owners of bust energy firms set for million-pound paydays
The owners of some of Britain’s collapsed energy firms are in line for payouts worth tens of millions of pounds – even as households foot the bill for those failures.
David Pike and Karin Sode founded The People’s Energy Company four years ago with crowdfunded cash. In September it collapsed, leaving 350,000 domestic customers adrift.
Yet the founders may receive about £50m once debts have been paid off, Bloomberg reports. They also won’t have to cover the £283m cost of moving their customers to British Gas.
They’re not alone. Around 30 energy supplies have gone bust since last August amid a surge in wholesale gas prices, and other shareholders could also be compensated for valuable contracts that were bought in advance.
Meanwhile, Ofcom estimates that energy supplier collapses have cost around £2.7bn or roughly £94 per customer – costs that will be passed on to householders through higher bills.
Joules lifts profit forecast after slashing costs
Joules has said its profitability is now ahead of targets after it made “good progress” with cost-cutting efforts.
The upmarket fashion brand said its pre-tax profits for the year to the end of May were slightly ahead of expectations, sending its shares higher.
Still, it comes after two profit warnings earlier this year and its shares are still more than 80pc down since the start of 2022.
Joules, which saw chief executive Nick Jones announce his departure in May following the slump in value, said its improved profit position was driven by “additional cost reductions”.
US futures climb ahead of more Wall Street results
US futures pushed higher this morning as investors prepare for another wave of Wall Street results.
All eyes will be on Netflix for signs of further slowdown in subscriber growth when it reports its figures tonight. Apple dipped in late trading yesterday amid reports it’ll slow hiring to weather the economic slowdown.
Futures tracking the S&P 500 and tech-heavy Nasdaq both rose 0.9pc. The Dow Jones gained 0.7pc after erasing an earlier loss.
IMF: Gas crunch to batter European economies
Here’s a bit more on the IMF’s damning forecasts, courtesy of my colleague Tom Rees:
The IMF said: “If physical constraints impede gas flows, the fragmented market approach suggests that the negative impact on economic output would be especially significant, as much as 6ps for some countries in Central and Eastern Europe where the intensity of Russian gas use is high and alternative supplies are scarce.”
Hungary, the Slovak Republic and the Czech Republic would be worst affected while Italy would also “face significant impacts due to its high reliance on gas in electricity production”.
Germany – which is heavily dependent on Russian gas – could suffer a hit of near 3pc, the IMF’s analysis suggests.
French merger could push HS2 costs even higher, watchdog warns
The cost of HS2 risks spiralling even higher as the merger of two French contractors leaves the taxpayer at risk of a worse deal on a £300m contract.
Oliver Gill has more:
The Competition and Markets Authority (CMA) said the £6bn merger of engineering companies Bouygues and Equans “could result in a higher-cost final contract, which would have an adverse knock-on effect on taxpayers”.
Bouygues-owned Colas Rail has been shortlisted alongside a consortium led by Equans in HS2’s £300m tender to install the cables. The other two bidders for the lucrative contract are Balfour Beatty, and the China Railway Electrification Engineering Group.
Colin Raftery, senior director at the CMA, said: “Competitive tenders help make sure that taxpayers get the best possible deal when large public works, like HS2, are undertaken.
“The HS2 tender for overhead catenary systems is at an advanced stage, but the remaining bidders are continuing to compete on the final aspects of the contract. It’s important to ensure that this process isn’t undermined, as this could result in unnecessary additional costs, ultimately leaving taxpayers worse off.” HS2 has been contacted for comment.
More travel misery as Heathrow workers plot three-day strike
Yet more travel misery is looming after refuelling workers at Heathrow announced plans to stage a three-day strike.
The strike will go ahead later this week, sparking delays to hundreds of flights for airlines including KLM, Emirates, Virgin and Delta.
It comes after workers at Aviation Fuel Services, which is responsible for refuelling half of the non-British Airways traffic at Heathrow, rejected a pay offer.
The three day strike will begin at 5am on Thursday July 21 and end at 04:59 on Sunday July 24.
Unite general secretary Sharon Graham said:
AFS is wholly owned by incredibly wealthy energy companies who are entirely able to provide our members with a decent pay increase. This is yet another example of energy companies boosting profits at the expense of workers.
Miners warn of tough times as demand wavers
Two of the world’s biggest miners have warned of tough times ahead for commodities producers as costs surge and demand for everything from iron ore to copper wanes.
BP Group warned of an “overall slowing of global growth” caused by Russia’s war in Ukraine, the energy crisis across Europe and global interest rate rises.
The comments echoed remarks from rival Rio Tinto last week.
BHP also said cost pressures would linger over the coming year as demand falls in China and fears mount of recessions across developed economies.
At the same time, miners are facing rising costs. Mike Henry, chief executive of BHP, said: “We expect the lag effect of inflationary pressures to continue through the 2023 financial year, along with labour market tightness and supply chain constraints.”
EU doesn’t expect Russia to restart Nord Stream
The EU doesn’t expect Russia to restart gas flows through the key Nord Stream pipeline this week – the clearest indication yet that the bloc is bracing for the worst.
Johannes Hahn, Budget Commissioner, said: “We don’t expect that it comes back. We are working on the assumption that it doesn’t return to operation. And in that case certain additional measures need to be taken.”
Russia is due to resume flows through Nord Stream on July 21 after planned maintenance, but fears are growing that the link won’t return.
Fears mounted further yesterday after it emerged Kremlin-controlled Gazprom declared force majeure on some of its gas supplies to Europe.
A full cut-off of gas could have catastrophic effects on Europe, and countries are racing to find alternative supplies and fill up storage amid fears of blackouts and rationing this winter.
Ukrainian farmers sow the seeds of a future food crisis
The world faces another food price crunch as farmers in Ukraine are set to cut back wheat planting by as much as two-thirds if they cannot export their crops.
Tim Wallace has more:
Mykola Solskyi, the country’s agriculture minister, said that farmers in the crucial grain producing nation lack the funds needed to buy supplies, and have been crippled by the blockade of the Black Sea by Russia following its invasion.
Global food prices are already up by almost one-quarter compared with last year, according to the UN, with cereal prices up by more than 27pc – something which will not be helped by the prospect of a further tumble in Ukrainian production and exports.
The country is a particularly big supplier to middle eastern nations which will need to find wheat from other sources, putting pressure on the rest of the global market.
“Farmers will reduce winter sowing, wheat and barley from 30 to 60pc,” Mr Solskyi said in an interview with the Financial Times.
Reaction: ECB decision will drive sentiment
Neil Birrell at Premier Miton Investors says all eyes will be on the ECB’s interest rate decision this week
The final Eurozone CPI numbers for June were unchanged from the initial ones. No surprise there.
However, the ECB will still be pondering the size of the rate increase coming up on Thursday. With 25bps inked in up until now, it may be that they consider 50bps, which would be some distance from previous guidance.
It would, however, be consistent with what markets are expecting in terms of policy direction over the coming few weeks from major central banks.
It’s a big week in Europe, for both macro and markets; the ECB announcement will drive sentiment.
Euro jumps as markets bet on big ECB rate rise
The euro has jumped to a two-year high as markets began to bet on a more aggressive pace of interest rate rises by the European Central Bank.
The common currency rose more than 1pc after reports that ECB policy makers may consider a 50-basis-point rate hike at their meeting this week – larger than the quarter-point move signalled in June.
That led money markets to bet on almost 50pc odds of a half-point hike this week and more than a percentage point by September.
Meanwhile, eurozone inflation was confirmed at 8.6pc for June as the bloc continues to grapple with price pressures.
Apple to cut back on hiring
Apple plans to cut back on hiring next year as it prepares to weather the economic winter, writes Matthew Field.
While the iPhone giant is still preparing a slew of product launches, teams that could normally add between 5pc and 10pc to their headcount are being frozen, Bloomberg reports. The company is also not backfilling some departing roles.
Even as it trims hiring, Apple is expected to increase its spending on staff as it boosts wages to cope with a tight labour market and keep talent. The technology giant is due to report its quarterly results next week as it prepares for its annual iPhone launch, expected for September.
The tech giant has also been forced to contend with lockdowns in China disrupting its complex supply chain. Apple said it expected the problems to cost it around $8bn. A ban on selling to Russia is also expected to weigh on its financial results.
Shares in Apple fell 2pc on news it was slowing hiring.
Informa inks $389m deal for US business publisher
Publishing group Informa is riding high at the top of the FTSE 100 this morning after it unveiled a $389m (£324m) deal to buyer US business news publisher Industry Dive.
Informa said the deal would bolster its business-to-business digital services. Shares rose about 4pc.
It’s the latest transaction amid a flurry of dealmaking by UK publishers. In February, Informa agreed to sell 85pc of its Pharma Intelligence division to Warburg Pincus for £1.7bn.
Euromoney this week agreed a £1.6bn takeover by Astorg Asset Management and Epiris, while Future has continued to snap up titles after buying brands from Dennis Publishing for £300m last year.
XR targets Murdoch’s News UK in latest climate protest
Extinction Rebellion has launched its latest wave of protests – this time Rupert Murdoch’s media empire is the target.
Demonstrators smashed windows and spray-painted slogans to highlight what they described as a failure by organisations including the Sun and the Times to cover the climate crisis.
Stig Abell, a presenter on Times Radio, said the protests happened while he was on air talking to scientists about climate change.
Hotel Chocolat warns on loss as consumer spending melts
Hotel Chocolat has warned it will slump to an annual loss and that profits will fall next year as it revealed write-downs and scaled back growth plans due to consumer spending woes.
The upmarket chocolatier said it now expects to report a bottom line loss for the year after shutting its US retail stores and scaling back its joint venture in Japan amid wider economic uncertainty.
It said: “In response to the change in the global macroeconomic environment, investment levels in the USA and the Japan joint venture will be materially reduced, with ongoing investment limited to essential working capital only.”
This will leave it nursing a statutory loss for 2021-22 after booking hefty write-downs, including £3m for the US store closures.
Hotel Chocolat added that a decision to focus on “most proven and lowest-risk strategies” over the next three years in the face of economic and cost woes will lead to lower profits next year.
Angus Thirlwell, co-founder and chief executive of Hotel Chocolat, said the market had “rapidly changed for all businesses” over the past six months.
He added: “A year of exceptional sales growth following two years of reactionary tactics to the pandemic has left clear opportunities for us to proactively streamline overheads and improve gross margins.”
Pound climbs after jobs data
The pound rose this morning after the latest jobs data prompted some traders to scale back their bets on interest rate rises.
Wage growth came in lower than forecast in May, sparking some hopes that inflation could slow.
Still, ING analysts wrote that the data was “unlikely to change too many minds” at the Bank of England, with hawks still pushing for a 50 basis-point hike amid continued worker shortages.
The pound rose 0.5pc against a weakening dollar to $1.2016. Against the euro, it fell 0.4pc to 85.2p.
Macron offers €9.7bn to nationalise EDF
Emmanuel Macron has offered €9.7bn (£8.3bn) to full nationalise EDF as it tries to get a grip on the escalating energy crisis.
The French state will offer €12 a share to acquire the 16pc of EDF it doesn’t already own. That’s a premium of 53pc to the closing price of €7.84 the day before French Prime Minister Elisabeth Borne announced the nationalisation.
The offer will be submitted to the French stock market regulator by early September, with the aim of closing the process by mid-October, according to the finance ministry.
France is hoping to take full control of debt-laden EDF as it tries to keep household bills in check while making huge investments to wean the country off Russian energy.
SoftBank puts Arm’s London float on hold
SoftBank is said to have put plans for a London stock market listing of chip giant Arm on hold due to the political turmoil rocking Britain.
The Japanese conglomerate was in talks over a dual listing in London and New York, with Boris Johnson and other ministers personally lobbying for the London Stock Exchange.
But the collapse of the Government has prompted SoftBank to put those talks on hold, the Financial Times.
The development casts doubt on Britain’s role as the home of Cambridge-based Arm. An IPO would also have been one of the largest ever tech floats for the London market.
Santander to raise wages for 11,000 workers
While there debate over public sector pay rages on, there’s another chunky pay rise at a major private sector employer.
Santander has said it’s giving a 4pc pay rise to more than 11,000 employees to help them cope with the cost-of-living crisis.
The increase, which comes into force next month, will be granted to all employees earning less than £35,000. That covers 60pc of the bank’s workforce and the majority of its branch and contact centre staff.
Santander will also increase its entry level salaries to £19,500 from 1 August.
Mike Regnier, chief executive of Santander UK, said:
The increased cost of living is impacting households across the country, so we have looked at how best we can help the majority of our own people who play such important roles for Santander.
This 4pc pay raise will make a real difference to the majority of our customer facing and contact centre staff who are committed to helping our customers and businesses prosper in the current economic climate.
Made.com crashes as it battles spending slump
Made.com has nosedived in early trading as the online furniture retailer scrambles to cut costs amid a squeeze on consumer spending.
Shares crashed almost 37pc after the company said annual losses were likely to be worse than feared, with a 19pc plunge in half-year sales set to send it tumbling to an underlying loss of between £50m and £70m.
The group said it was being hit by a sharp fall in demand for big-ticket items such as sofas as the cost-of-living crisis takes its toll on consumer confidence.
As a result, Made is reviewing its operational structure and headcount, as well as improvements to stock buying and warehousing, to try and boost its bottom line by between £10m and £15m.
Nicola Thompson, chief executive of Made.com, said:
It’s clear that things are tough for consumers at the moment.
Understandably, we’ve seen a worsening in consumer confidence since May and this has had an impact on this period’s performance.
As such, it’s prudent for us to take a conservative view of what we can expect in the second half of this year.
Grant Shapps: Public sector pay can’t rise with inflation
The latest jobs figures come amid a bitter row over public sector pay, with reports that pay rises could be capped well below inflation at 5pc.
Transport Secretary Grant Shapps this morning said pay couldn’t rise with inflation as that would erode savings and other workers’ incomes.
He told LBC:
One thing we don’t want to do is allow inflation to run out of control. When that happens you get into a vicious circle where it erodes people’s incomes, it erodes people’s savings.
This is a spike going through the system caused by Putin’s war in Ukraine and the big upset that’s had to, for example, fuel supplies.
It’s very important that we don’t chase that inflation, otherwise we’ll be permanently poorer, and that’s why the plan which gets us back on track as quickly as possible is important – and pay rises will need to reflect that.
FTSE risers and fallers
The FTSE 100 has slipped in early trading as the latest jobs data supported the case for more interest rate rises by the Bank of England.
The blue-chip index shed 0.3pc as the labour market remained tight and wages continued to grow.
Ocado was the biggest faller, down almost 4pc after Kantar data showed grocery inflation hit 9.9pc.
Publishing group Informa bucked the trend with a 3.8pc rise after it said it will acquire US business news group Industry Dive for $389m.
The domestically-focused FTSE 250 dropped 0.5pc. Made.com plunged almost 37pc after slashing its sales and profit guidance for the full year.
Number of women in work rises 2m since 2010
One bright point in this morning’s jobs data is the steady rise in the number of women in work over the last decade.
The number of working women now stands at 15.7m – 2m more than in 2010.
More women are also progressing into senior, higher-skilled jobs. The portion of women becoming managers, directors and senior officials has climbed almost 25pc since 2010 – an increase of almost a quarter of a million.
Julie Marson, DWP minister, said:
It’s fantastic news that today we’ve got 2m more women in work than in 2010 and the latest OECD data shows we have the second highest level of women in work in the G7.
As we grow the economy, it’s vital we make sure everyone can find a job that’s right for them – and importantly that they can progress in work.
Grocery price inflation soars to 9.9pc
In another reminder of the price rises eating away at wages, grocery price inflation has jumped to 9.9pc over the last month.
The figure is the second highest ever recorded and means shoppers are paying an extra £454 per year at the tills, according to data from Kantar.
The surge in prices mean Brits will be feeling the pinch as they head into the first restriction-free summer since 2019, while the heatwave has driven up sales of ice cream and suncare products by 14pc and 66pc respectively over the last month.
Overall, supermarket sales rose 0.1pc over the latest period – the first time the market has been in growth since April 2021.
Reaction: Employment jump fuels chance of big interest rate rise
Thomas Pugh at RSM UK says the labour data will fuel expectations of aggressive interest rate rises by the Bank of England.
The huge jump in the number of people employed in the three months to May, combined with the tick up in underlying wage growth significantly raises the chances of a 50 basis-point rate hike in August.
Admittedly, total wage growth fell from 6.8pc in the three months to April to 6.2pc in May as bonus payments dropped. But regular pay growth rose from 4.2pc to 4.3pc, significantly above the level that the Monetary Policy Committee views as consistent with its inflation target.
Add in employment growth of almost 300,000 and it paints a picture of a very tight labour market. Combine this with soaring inflation, which is likely to have reached 9.3pc in June, and the surprise upward revisions to the GDP data released last week and we think a 50bps hike next month is now more likely than not.
Unions hit out at ‘crisis of real pay’
The latest jobs data has prompted an angry response from unions.
The Trade Union Congress dismissed the idea of a wage-price spiral as “nonsense” and said there was a “crisis of real pay”.
FTSE 100 falls after jobs data
The FTSE 100 has fallen after the latest jobs data showed wage growth is still lagging far behind inflation.
The blue-chip index dropped 0.6pc at the open to 7,183 points.
Reaction: Tight labour market doing little to push up pay growth
Martin Beck, chief economic advisor to the EY ITEM Club, says the latest data gives “conflicting evidence” on the strength of the labour market.
On the plus side, employment and participation both grew strongly compared with the previous three months. But on the flip side, the unemployment rate remained stable at 3.8pc and growth in job vacancies continued to slow.
Most indicators suggest that the labour market remains tight by historical standards. But there’s still little evidence to suggest that tightness is being reflected in stronger pay growth.
Headline regular pay growth was just 4.3pc in May, only a little more than half the pace of inflation over that period.
The prospect of inflation moving higher in the autumn means that the MPC is likely to continue raising interest rates at its next few meetings.
But market pricing implying that Bank Rate will reach 2.75pc by end-2022 (150bps of hikes across four meetings) looks overstated given the data continue to offer little evidence to validate the MPC’s concerns about the risk of second round effects of inflation via higher wage growth. The EY ITEM Club expects Bank Rate to finish the year at 2pc.
IoD: No let-up in staff shortages
Kitty Ussher, chief economist at the Institute of Directors, says there’s no respite for businesses struggling to hire staff.
The labour market remains extremely tight, providing opportunities for households and no let up in the difficulties employers have in recruiting staff.
Having said that, there is a suggestion that things might be beginning to settle, with a slowing in the rate of increase in vacancies and the rate of unemployment possibly bottoming out in the most recent data.
Firms struggling to fill vacancies will also be encouraged by early signs that some of the people that had previously said they did not want a job are now entering the labour market, as shown by the economic inactivity rate falling by 0.4 percentage points on the previous quarter.
Overall, however, there is nothing in this data that would prevent the Bank of England from continuing to raise rates when it meets in early August.
Hiring could falter as economy slows
While redundancies remain at a record low, the strength in the labour market may not last as the economic slowdown hits hiring plans, explains Tim Wallace:
In cash terms, annual pay growth is relatively fast at 6.2pc in the three months to May.
However, it is failing to keep up with the cost of living, and in the single month of May slowed to 3.9pc – its weakest since November last year.
This comes despite employers reporting a widespread skills shortage, with almost 1.3m job vacancies available, slightly higher than the 1.29m unemployed people seeking work. Redundancies fell to a new record low as employers are desperate to keep the staff they have.
But this strength may not last. Yael Selfin, chief economist at KPMG UK, said the jobs market may be “approaching a turning point” as inflation undermines the economy’s recovery.
“With a more persistent inflationary outlook, consumers will likely remain under pressure for longer before they can afford a return to their previous spending patterns,” she said.
“While the labour market remains tight, there are signs that a slowing economy could see companies adjust their hiring plans in light of weakening demand and diminishing margins.”
ONS: Mixed picture for labour market
David Freeman, ONS head of labour market and household statistics, said:
Today’s figures continue to suggest a mixed picture for the labour market.
The number of people in employment remains below pre-pandemic levels and, while the number of people neither working nor looking for a job is now falling, it remains well up on where it was before Covid struck.
With demand for labour clearly still very high, unemployment fell again, employment rose and there was another record low for redundancies.
Following recent increases in inflation, pay is now clearly falling in real terms both including and excluding bonuses.
Excluding bonuses, real pay is now dropping faster than at any time since records began in 2001.
UK workers flock back to jobs market
UK workers are flocking back to the labour market at the fastest pace since the pandemic began as the cost-of-living crisis takes its toll.
The outbreak of Covid sparked a surge in people leaving the workforce, sparking widespread labour shortages that have dogged the economy ever since.
But the number of economically inactive people decreased by 0.4 percentage points – or 144,000 between March and May – the biggest drop since the pandemic began. Employment surged by 296,000.
It comes as soaring inflation puts ever more pressure on household budgets, with real wages still falling at the fastest pace on record.
Adjusted for inflation, regular pay excluding bonuses dropped 2.8pc between March and May – the biggest decline since records began in 2001. With bonuses included, workers were still 0.9pc worse off.
Inflation currently stands at a 40-year high of 9.1pc and is due to push even higher when the latest data is released tomorrow, before peaking above 11pc later in the year.
5 things to start your day
1) Andrew Bailey battles to protect his empire as Tory criticism builds Bank of England faces its greatest challenge since independence amid push for reform
2) ‘Slasher’ airlines’ low wages led to travel chaos, says Heathrow boss Plus: Airlines are to blame for travel chaos for underpaying baggage handlers
3) Gen Z drives £25bn plunge in spending as income shock hits Younger generations more likely to cut back on groceries, clothing and going out than Boomers
4) Tory Party members don’t care about net zero target ‘because 90pc will be dead by 2050’ Conservative MP Chris Skidmore says climate change fight requires more urgent timeframe
5) Millions of pounds needed to meet UK heat pump targets, warns National Grid ‘Insufficient incentives’ threaten 600,000-a-year installation goal
What happened overnight
Stocks dropped in Hong Kong this morning, with the Hang Seng Index plummeting 0.6pc.
The Shanghai Composite Index inched up, while the Shenzhen Composite Index on China’s second exchange also crept higher.
Tokyo stocks opened higher, with the benchmark Nikkei 225 index up 0.7pc in early trade.
Coming up today
Economics: Unemployment rate (UK), claimant count rate (UK), average earnings (UK), inflation (EU), ECB bank lending survey (EU), building permits (US), housing starts (US)
Corporate: BHP, IntegraFin Holdings (trading update)