Wage growth was little changed and was well behind the rate of inflation
about 14 hours ago
Employment rose 94,000 to 32.1 million. At 75.1 per cent, the employment rate is just below the record 75.3 per cent recorded in May to July. Photograph: iStock
UK unemployment held at a 42-year low in the three months through August and the number of people in work approached a record high, according the figures published Wednesday.
The latest snapshot of the labour market from the Office for National Statistics may help to explain why the Bank of England (BOE) appears to be edging toward its first interest-rate increase for a decade.
Wage growth was little changed at just over 2 per cent – well behind the rate of inflation – but officials are signalling they are no longer prepared to wait for a pickup before tightening policy.
In evidence to lawmakers on Tuesday, BOE Governor Mark Carney made clear that the erosion of slack in the economy is the primary concern as policy makers prepare for their November 2nd meeting.
The jobless rate stood at 4.3 per cent in the latest period, staying below the 4.5 percent rate regarded by the BOE as the “equilibrium rate”. The number of people looking for work fell 52,000 to 1.44 million.
Employment rose 94,000 to 32.1 million. At 75.1 per cent, the employment rate is just below the record 75.3 per cent recorded in May to July.
With the labour market tight and Brexit curbing immigration, boosting growth without generating inflation may require a significant improvement in productivity, something considered unlikely given the dismal performance of recent years and the effect Brexit is having on investment.
The pressure on living standards continued in the latest three months, with regular pay growth falling in real term for a sixth month. For some, that may be a reason to hold off raising rates.
But the squeeze may be past the worst, with recent surveys showing a pickup in wages and inflation expected to peak close to its current rate of 3 per cent before subsiding.
UK politicians are raising the prospect of Britain crashing out of the EU without any agreement on the divorce
about 17 hours ago
Ryanair has warned that there could be months during which there are no flights between the UK and Europe. Photograph: Hannah McKay/Reuters
The UK government has stepped up its rhetoric about the chances that Britain could crash out of the European Union without any agreement to bring order to the divorce. If the two sides can’t reach a deal, companies will suddenly find themselves outside the rules, regulations and free-trading arrangements that they have built their businesses around for decades.
What would such a scenario mean for business, and for daily life? Just a few estimates: £400 billion in lost economic growth by 2030, according to Rabobank; £17 billion in lost exports from just four sectors, according to law firm Baker McKenzie; a 2.6 per cent drop in per capita income, says a paper published by the Brookings Institution. Banks have so far led the charge in getting ready for a disorderly divorce that would probably result in tens of thousands of finance jobs relocating to the rest of Europe and billions in moving costs. But what about risks faced by key industries particularly reliant on EU trade, labor or common rules, such as food and pharmaceuticals?
Ryanair, based in Dublin but with a large UK business, warns there could be months during which there are no flights between the UK and Europe. Chancellor of the Exchequer Philip Hammond dismisses such suggestions, saying while it’s “theoretically conceivable’’ no one thinks that’s where we will end up. Easyjet is taking measures to make sure its flights between mainland European destinations won’t be affected, setting up an EU-based company in Vienna. But that won’t help UK-EU flights, in the worst-case scenario. The role of the European Court of Justice – taboo for pro-Brexit Brits – could come into play. Calmer heads say a deal will be reached as the EU has as much to lose as the UK. They could fall back on earlier bilateral agreements on flights, although those would cover more limited routes and frequencies.
Supermarkets are worried about fresh food rotting at border crossings, and in the fields if there’s no one to harvest it. Prices will go up. The industry has already been buffeted by the pound’s decline, with grocers increasing prices and cutting costs in response. Further hikes would become inevitable if a no-deal exit brings tariffs that the British Retail Consortium reckons could amount to an average 22 per cent. That would be on top of another sterling slump. The UK imports about half of its food. As for domestic produce, Brexit day is shortly before the growing season for much of Britain’s domestically produced fruit and vegetables. Without migrant labor, many suppliers will struggle to find legal workers to pick the crops. Still, when it comes to the risk of food held up at ports, the UK says its contingency plans for a no-deal split envisage measures such as registering consignments in advance, as there’s not much room to expand at Dover to make room for trucks awaiting checks.
Tensions rise between ‘tough guy’ Britain and ‘intransigent’ EU
Britain’s ‘tough-guy approach’ to Brexit criticised by Phil Hogan
Ireland could attract trillions in financial contracts post-Brexit
At stake is the free movement of medicines.From product registration to drug testing, there are many challenges still to be solved. The problem is particularly acute for drug and biotech companies whose products sometimes take years to make, test and navigate through regulatory channels. AstraZeneca CEO Pascal Soriot warns it may be “impossible” for the government to forge new trade accords, establish a regulatory framework and develop new procedures for shipping products in time.And falling back on World Trade Organization rules isn’t a panacea: the register hasn’t been updated since 2010.Even in the best case, the UK is set to lose the European Medicines Agency and with it the ability to have drugs approved for use both in the UK and the EU.
Tech companies – such as Facebook and Google – will face challenges on data rules in the event of a no-deal split. And this is an area Hammond has flagged as a possible risk. Personal data would continue to flow between the UK and the European Economic Area but if the EU decides UK data privacy laws are inadequate, they will be open to legal complaints from European authorities (and activists). That could mean fines and legal proceedings to force data to remain in the EEA. While companies can seek guarantees companies from European regulators that will allow them to send data to the UK, these may be difficult to obtain quickly given the number of businesses wanting them and the limited resources at Europe’s regulators.
Making goods in factories remains a key part of the UK economy, employing almost 3 million workers and accounting for almost half of all exports. While some manufacturers initially got an export boost after last year’s referendum when the pound fell, the risk of a chaotic divorce is a concern for many companies.The auto sector is dependent on exports, but also on imports for its components. Autoparts stranded at customs when they’re needed at just-in-time car plants is the industry’s nightmare scenario. Companies will suddenly need to deal with bureaucracy they’ve never handled before, and potentially with little warning. The Society of Motor Manufacturers and Traders estimates tariffs could increase the cost of imported cars by £1,500 on average.
With the possible exception of pub chain JD Wetherspoon, whose boss is an avid Brexit supporter, restaurants and pubs are wary of Brexit. At least one in five kitchen workers, more than one in three housekeepers, and three in four waiters are EU migrants. The British Hospitality Association warns of a staffing crisis: Britons represent just 2 percent of applicants at chains like Pret a Manger, and a replacement scheme won’t be in place until 2022.
Study by Housing Europe group says ‘housing exclusion’ exacerbated by crisis
about 17 hours ago
Housing Europe report: the paper noted that the number of people on local authority waiting lists in Ireland had doubled between 2008 and 2010, and was currently over 96,000
A major European report on housing has highlighted Ireland’s over-reliance on the private market as a key factor in the ongoing crisis.
The study by the Brussels-based Housing Europe group found that, while a number of positive initiatives had been undertaken by the Government to address the problem, including the provision of more social housing, there was “still a challenge to reverse the dependency on the private market”.
The report suggested that the insufficient supply of new homes predicated on the slow recovery in construction continued to be “the prime driver” of rents and prices in Ireland and elsewhere.
“Housing exclusion”, it said, had been exacerbated by the financial crisis and policies were failing to provide an adequate response in most countries.
The lack of affordable housing solutions had led to an “alarming increase” in homelessness and had placed increasing pressure on the social housing sector.
In Ireland, the report noted that the number of people on local authority waiting lists had doubled between 2008 and 2010, and was currently over 96,000.
The organisation, which is made up of a network of European housing providers, including the Irish Council of Social Housing, also said that the percentage of poorer households here paying “too much” for housing – which it equates to more than 40 per cent of their income – had more than doubled between 2005 and 2015.
One explanation it offered for the slow responsiveness of EU housing supply was the scarcity of building land and the “ever-increasing” price of land.
In Ireland, it noted that work had been undertaken to identify sites, including sites in public ownership, that housing associations can get access to, but there was no co-ordinated programme.
Surprisingly, Ireland did not figure in the list of most expensive countries for construction costs despite claims that building here has become prohibitively expensive.
Citing Eurostat data, the report noted that the most expensive countries for construction investment after Switzerland were Scandinavian countries, followed by Germany and France.
The report said housing had now become the highest expenditure for Europeans and that housing inequality was reinforcing income inequality.
“The [financial] crisis could have represented a turning point, showing the importance of investing in affordable, non-speculative housing,” it concluded. “However, so far there has been little change in social housing policies,” it said.
The report said that most EU member states had been decreasing public expenditure on housing and relying on measures to increase supply in the private sector or access to home ownership.
In the UK, it noted that spending on rental subsidies and housing benefits in England alone totalled nearly €25 billion in 2014/2015 while capital expenditure on building new homes amounted to just €5.4 billion.
Currently in Ireland some €730 million of the State’s €1.3 billion housing budget goes towards funding rent subsidies.
OECD report paints bleak picture for Britain but idea of second referendum is shot down
Tue, Oct 17, 2017, 19:55
Fiona Walsh in London
OECD secretary-general Ángel Gurría and Britain’s chancellor Philip Hammond: the Paris-based think tank was accused of being “a leading advocate of Brexit pessimism”. Photograph: Matt Dunham/PA Wire
Philip Hammond was taking no questions on Tuesday as he dashed away from a joint press conference with the Organisation for Economic Co-operation and Development (OECD).
“I’m sorry, I’ve got to run,” the chancellor told reporters as he made a hasty exit at the Treasury, leaving OECD chief Ángel Gurría at the podium to talk through the think tank’s biennial health check of the UK economy.
Gurría, on the other hand, had plenty to say on his Paris-based think tank’s explosive intervention in the Brexit debate, floating the idea of a second referendum on Britain’s membership of the European Union.
Forecasting growth of just 1 per cent next year, the OECD report painted a stark picture of Britain’s economic prospects in the event of a “disorderly” Brexit.
But, it said: “In case Brexit gets reversed by political decision (change of majority, new referendum, etc) the positive impact on growth would be significant.”
With the Brexit negotiations at a decidedly delicate stage (when will they ever not be?), the OECD’s intervention was particularly unwelcome in Whitehall.
Although Hammond didn’t hang around to air his views at the press conference, the Treasury issued a swift and somewhat terse response that needed no interpretation: “We are leaving the EU and there will not be a second referendum.”
Leading pro-Brexiteers reacted with fury to the OECD report, which suggested that a no-deal Brexit would slash up to £40 billion from the UK economy by 2019. Britain’s credit rating would be cut, sterling would slump, business investment would freeze and consumer spending would be choked off by rising prices.
Tory MP Jacob Rees-Mogg accused the think tank of being “a leading advocate of Brexit pessimism” which had made a series of “politically motivated and erroneous forecasts”. Fellow Tory Peter Bone labelled the report another example of “Project Fear” – the dire warnings of economic disaster issued in the run-up to the Brexit referendum last year.
Gurría softened the second referendum comments by insisting that he and the OECD are “devoted” to making the Brexit deal “as seamless, as smooth as possible”.
But he had harsh words on Britain’s poor record on productivity, which has made “no meaningful contribution” to output since 2007. And he was unimpressed with the skills of the British workforce, which he said acted as “an anchor” in holding the country back.
The report put forward higher taxes on self-employed people as one way of addressing the productivity problem. It also advocated a cut in benefits to pensioners by doing away with the “triple lock” on state pension payments and instead linking payments to average earnings.
Perhaps mindful of Hammond’s gaffe last week when he described EU negotiators as “the enemy”, Gurría adopted wartime analogies to sum up the UK’s position. “What was it Churchill said? Keep calm and carry on. It’s like the Blitz, except, fortunately, without the bombs.”
For that much at least we can be grateful.
Retirees jump for joy as inflation rises
The OECD may want Britain to dock pensioners’ benefits but there was welcome news for the nation’s retirees as inflation jumped to 3 per cent last month. This is its highest level in over five years and, crucially, the figure on which next year’s rise in state pension payments will be based.
The so-called “triple-lock” on pensions dictates that the annual increase will be a minimum of 2.5 per cent, or based on the September increase in earnings or consumer price inflation, whichever is the higher of the three figures.
So state pensions look set to rise by 3 per cent, a move that is likely to inflame tensions over intergenerational fairness, with baby-boomers enjoying rising benefits and huge increases in the value of their homes while the young, struggling under the weight of student loans and squeezed wages, abandon all hope of home ownership.
Brexit is, of course, behind the increase in inflation to its highest level since April 2012, as the slump in sterling continues to push up the price of imported goods and raw materials.
The cost of living is likely to rise further, Bank of England governor Mark Carney indicated yesterday as he was questioned by MPs on the treasury select committee.
He admitted it was “more likely than not” that he would soon have to write an explanatory letter to the chancellor, which the governor is obliged to do if inflation moves more than one percentage point adrift of the government’s 2 per cent target.
Although inflation is unlikely to stay above 3 per cent for too long, it’s odds on that the central bank will increase rates next month for the first time in more than a decade.
Fiona Walsh is business editor of theguardian.com
Goldman Sachs and Morgan Stanley top forecasts despite industry decline in bond trading
Tue, Oct 17, 2017, 18:59
A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange. Goldman Sachs and Morgan Stanley both topped analyst expectations in third quarter results on Tuesday. Photograph: Brendan McDermid/Reuters
Wall Street rivals Goldman Sachs and Morgan Stanley topped analyst expectations on Tuesday, reporting third-quarter earnings gains from a range of products and services despite an industry-wide decline in bond trading.
Goldman’s private equity investments helped fuel its earnings beat, while Morgan Stanley’s wealth management unit delivered record revenue and profit margins. Both reported higher investment banking revenue than the year-ago period and kept a lid on expenses relative to revenue.
Executives at the biggest banks have argued that diverse business lines can offset temporary weakness in one area and that controlling costs can further pad the bottom line.
“This is the goal: that we’re not as reliant on sales and trading businesses,” Morgan Stanley chief financial officer Jonathan Pruzan said. “In a subdued trading environment, we can maintain our [market] share, yet when the market flexes up, we have capacity to participate in this growth.”
Shares of Morgan Stanley, which reported a better-than-expected 11 per cent profit rise and topped several of chief executive James Gorman’s financial targets, were 1.6 per cent higher at $49.81.
At a conference last month, bank executives cautioned that third-quarter trading results would be weaker because of low bond market volatility and a strong year-ago quarter. That prepared investors and led analysts to revise earnings forecasts lower.
Goldman’s bond trading results were under particular scrutiny from investors, since the fifth-largest US bank is more reliant on trading than competitors and does not have a significant retail operation to offset recent declines.
JPMorgan Chase, Bank of America and Citigroup, which beat expectations when reporting results last week, have major consumer operations, while Morgan Stanley has a huge retail brokerage arm that has been expanding into lending.
Goldman’s 26 per cent fall in third-quarter bond trading was within the 16 per cent to 27 per cent declines that Wall Street rivals had reported, but far less than the 40 per cent drop some analysts had been expecting.
Overall, the bank reported a 3 per cent profit decline that beat Wall Street estimates. – Reuters
Referendum to reverse Brexit decision or keeping of close UK-EU bonds advised
Tue, Oct 17, 2017, 18:32
Updated: Tue, Oct 17, 2017, 18:49
Denis Staunton in London
OECD secretary-general Angel Gurria shakes hands with Britain’s chancellor of the exchequer Phillip Hammond: any threat to the peace process in Northern Ireland from the introduction of a hard Border would damage UK economic growth. Photograph: Neil Hall/EPA
Leaving the European Union with no new trade deal would hurt Britain’s long-term growth, push the pound to a new low and damage the country’s credit rating, the Organisation for Economic Co-operation and Development (OECD) has warned. The Paris-based institution said that reversing Brexit through a fresh referendum would give the economy a “significant” boost.
The OECD’s annual assessment of the UK economy, which was published on Tuesday, urges Britain to seek the closest possible relationship with the EU after Brexit.
“In the absence of a free-trade agreement in 2019, switching to World Trade Organisation [WTO] rules would cut UK growth by 1.5 percentage points that year. This assumption underpins the projections in this survey, given the large uncertainty about the outcome of negotiations,” it said.
The report warns that any threat to the peace process in Northern Ireland from the introduction of a hard Border would further damage UK economic growth, as would a collapse of the Brexit negotiations in Brussels.
“A break-up of EU-UK negotiations, cancelling out the prospect of a trading relationship in the foreseeable future, would trigger an adverse reaction of financial markets, pushing the exchange rate to new lows and leading to sovereign rating downgrades.
“Business investment would seize up, and heightened price pressures would choke off private consumption. The current account deficit could be harder to finance, although its size would likely be reduced,” it said.
Conversely, the report suggests that a reversal of Brexit, either through a change of government or a second referendum, would boost growth significantly.
The UK treasury responded with a statement ruling out any reversal of last year’s referendum decision. “We are working to achieve the best deal with the EU that protects jobs and the economy. We aim to agree a free trade agreement that is comprehensive and ambitious,” it said in the statement. “We are leaving the EU and there will not be a second referendum.”
The OECD report came as inflation in Britain reached its highest level since 2012, with the Consumer Prices Index climbing to 3 per cent in September. The fall in the pound since last year’s Brexit referendum fuelled the rise in inflation, pushing up the cost of imported goods.
Food and transport
“Food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year,” said Mike Prestwood, head of inflation at the Office for National Statistics.
Wages are growing at an annual rate of just 2.1 per cent, so British workers are experiencing a fall in their real income.
Bank of England governor Mark Carney told MPs on Tuesday that inflation was likely to rise further before it stabilised.
“We expected sterling to fall sharply. It did. That passes through to prices,” he said. “The sole reason that inflation has gone up as much as it has is the depreciation of sterling.”
Intervention puts stark numbers on what a hard Brexit could mean – which in turn underlines the threat to Ireland’s growth prospects
Tue, Oct 17, 2017, 15:26
There was fury in London at a sentence in the OECD document which said that if the Brexit decision was reversed, “the positive impact on growth would be significant.”
The OECD has lobbed a grenade into the Brexit debate, estimating a major hit to growth in 2019 if the UK leaves without a deal and saying that the flip-side would be a boost to UK growth expectations if the Brexit decision was reversed. As talks between Britain and the EU fail to progress, the OECD intervention puts some stark numbers on what a hard Brexit could mean – which in turn underlines the threat to our own growth prospects.
There was fury in London at a sentence in the OECD document which said that if the Brexit decision was reversed, “the positive impact on growth would be significant.” The UK Treasury responded with a short statement saying:” We are leaving the EU and there will not be a second referendum.”
There was fury in London at a sentence in the OECD document which said that if the Brexit decision was reversed, “the positive impact on growth would be significant.”
The OECD, a Paris- based think tank with 34 members from the richer world economies, may not have wished to cause a political fuss, but its economic message is clear. The run up Brexit will slow UK growth to 1 per cent next. And if there is a hard Brexit, it would knock a full 1.5 percentage points off growth in 2019, the year Britain is due to leave, although the OECD has not yet said what it expects growth to be that year.
The language is stark. A hard Brexit would mean Britain leaving without a deal, with tariffs and other trade barriers immediately put in place under World Trade Organisation rules, damaging UK exports and putting up prices for consumers. Sterling could collapse, the OECD warns, pushing up inflation and hitting purchasing power. “ Business investment would seize up and heightened price pressures would choke off private consumption.”
The potential chaos of a “no deal” Brexit would clearly also provide big problems for Ireland and particularly for trade with the UK and potentially the Border. The difficulty for economic forecasters – particularly those in the Department of Finance – is trying to judge what the outcome of talks will be and then what it mightmean.
The initial growth hit after the Brexit vote did not emerge, meaning widespread upgrading of Irish growth forecasters for this year. However with UK growth now slowing and the potential, as the OECD outlined, of a big 2019 hit to UK growth in the event of a hard Brexit, big uncertainties still lie ahead.
Official Ireland forecasts have already baked in a 3.5 per cent cut to growth over 10 years after Brexit, but the immediate risk is of a bigger-than-expected hit in 2019-2020, in the event of a “no deal” Brexit.
Little progress so far
The OECD warnings of a big hit to UK growth and a further drop in sterling are both obvious threats for us. The OECD also warns of the “major negative economic impacts” of any changes to the UK’s borders with Scotland and Ireland. Examining the ideas put forward by the UK to make borders – including the one on the island of Ireland – as frictionless as possible, if the UK leaves the single market and customs union, the OECD dismisses many as either “ unprecedented” or “ untested.” This highlights the difficulties of limiting the impact on the Border, particularly if Britain leaves the customs union.
The OECD says the UK could cut the economic damage by agreeing a transition period after it leaves the EU – giving time to negotiate a new trade deal with the EU. The OECD feels such a deal might be negotiated by 2023. However so far little progress has been made in talks between Brussels and London, with all eyes now on this week’s EU summit.
Warnings about the economic dangers of a hard Brexit are growing. On Monday a study by the Resolution Foundation and the University of Sussex estimated it could cost the average UK household £260 per year as import prices rise, with some larger poorer households hit by as much as £500. Concern is also growing about massive job losses in the City of London and in some other sectors. Yet the toxic politics in the UK are mitigating against a deal.