BoE governor: rising evidence of slack in the labour market
The governor of the Bank of England has warned UK businesses that Britain’s jobs market may be easing.
In his speech to the BCC’s annual conference, Andrew Bailey says he is hearing “a bit more evidence” that firms are adjusting pay and employment levels following the rise in employer National Insurance Contributions announced in the last budget.
Bailey says:
In recent months, the evidence that slack is opening up has strengthened, especially in the labour market. But there remain uncertainties around the overall balance between supply and demand in the economy as well as the remaining inflation persistence in the system.
The governor cites the latest labour force statistics, which shows subdued employment growth is subdued, and “several indicators of labour demand and hiring intentions have softened”, including a fall of over 100,000 in the number of payrolled employees in May.
Key events
Back in the UK, the competition regulator is considering whether Boeing’s deal to acquire Spirit AeroSystems could affect competition.
The deal was agreed almost a year ago, with Boeing paying $4.7bn for aerospace supplier Spirit, which makes the body of the 737 Max jet,
The CMA is inviting comments from parties by 15 July. It wants to find out if the deal will result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
Recurring US jobless claims rise to highest since November 2021
America’s jobs market also appears to be slowing!
Recurring applications for US unemployment benefits have risen to the highest level since November 2021, a sign that more Americans are staying out of work for longer.
The number of ‘continuing claims’ for unemployment support rose to 1,974,000 in the week to 14 June, an increase of 37,000 from the previous week’s revised level. This is the highest level for insured unemployment since 6 November, 2021 when it was 2,041,000.
The continuing claims figure is a proxy for the number of people receiving benefits, so this indicates a slowdown in the US jobs market.
The number of new claims for jobless support dropped last week, though, to 236,000, a decrease of 10,000.
US economy shrank more than thought in Q1
Newsflash: The US economy shrank more rapidly than previously estimated in the first quarter of this year, as Donald Trump’s tariff threats widened the US trade gap.
The U.S. economy contracted at a 0.5% annualized rate in Q1, more than the 0.2% rate of decline estimated a month ago, the Bureau for Labor Statistics has reported.
That’s the equivalent of a 0.125% quarter-on-quarter contraction.
The BLS says:
The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment and consumer spending.
BoE governor: signs that wage growth is slowing
Bailey also warned there is “still some way to go” in the process of bringing wage growth down.
Such a reduction is necessary, he argues, to create “a sustainable disinflation” in the UK economy.
Governor Bailey says there are signs that pay growth is slowing, explaining:
Annual private sector regular average weekly earnings (AWE) growth was 5.1% in the three months to April, down from 5.9% in the three months to January, having risen in the second half of last year.
That said, AWE measures are reducing much as we have been expecting, and momentum in the latest data has softened.
The latest data on pay settlements and pay expectations point to a significant decline in wage growth in the year ahead. The latest intelligence from the Bank’s Agents continue to suggest average pay settlements for 2025 of 3.5 to 4.0%, closer to levels consistent with the inflation target.
Andrew Bailey also indicated that the increase in employer NICs rates, which began in April, could be pushing up prices in the shops.
He tells the BCC’s conference that food price inflation, which rose to 4.4% in May, is also on the Bank’s “watch list”, adding:
The prices of meat, chocolate and non-alcoholic drinks have gone up the most, consistent with higher wholesale prices for beef, cocoa beans and coffee. These price increases are to an extent idiosyncratic, with reports of reductions in cattle herds and climate-related disruptions to coffee and cocoa production.
But our Agency intelligence also highlights labour costs and costs related to new packaging regulation as wider factors at play. And, like energy prices, food prices are salient to consumers. We have to make sure that these increases do not feed through to second-round effects either.
BoE governor: rising evidence of slack in the labour market
The governor of the Bank of England has warned UK businesses that Britain’s jobs market may be easing.
In his speech to the BCC’s annual conference, Andrew Bailey says he is hearing “a bit more evidence” that firms are adjusting pay and employment levels following the rise in employer National Insurance Contributions announced in the last budget.
Bailey says:
In recent months, the evidence that slack is opening up has strengthened, especially in the labour market. But there remain uncertainties around the overall balance between supply and demand in the economy as well as the remaining inflation persistence in the system.
The governor cites the latest labour force statistics, which shows subdued employment growth is subdued, and “several indicators of labour demand and hiring intentions have softened”, including a fall of over 100,000 in the number of payrolled employees in May.
Bailey: UK economy likely to grow at a more moderate pace
Bank of England governor Andrew Bailey then warns the British Chambers of Commerce that UK growth is likely to slow to a “more moderate pace” over the coming quarters.
Bailey explains that the 0.7% growth in January-March was stronger than expected, but partly due to one-off factors.
He says:
First, the unexpected strength in the first quarter was driven by strong outcomes for volatile components of GDP in the monthly figures for March. This was possibly a result of front-loading of activity ahead of increases in Stamp Duty Land tax and Vehicle Exercise Duty, and with a temporary boost to trade ahead of the imposition of new tariffs on exports to the United States. Consistent with this, monthly GDP contracted by 0.3% in April.
Second, looking at the expenditure components of GDP, while business investment was strong in the first quarter, businesses tell us that heightened uncertainty and a weak demand outlook are weighing on investment intentions. That could point to slower investment over coming months – although how it pans out remains to be seen, and again I was encouraged by what the Prime Minister had to say earlier.
And, while real household incomes have risen quite strongly, consumption has not followed suit. The household savings rate, in other words, has gone up – and to quite a high level compared to past experience. We have not seen evidence yet to indicate any decline in the saving rate, with the implications that carries for consumption.
The governor of the Bank of England is warning UK businesses that they are at risk from “elevated global uncertainty”.
Speaking to the BCC’s annual conference in London today, Andrew Bailey says:
There is a lot going on in the world around us. Escalation of the conflict in the Middle East drove up energy prices in the past few weeks but in the last few days they have come back down again. Global trade policies remain unpredictable. These are things that weigh on the global economy.
Bailey then warns that the UK economy’s potential growth has slowed in recent decades – from an estimate of over 2.5% in the period from 1990 to the financial crisis, to just 1.25% since.
Raising the potential growth rate of the economy is one of the most important challenges facing us as a society today, Bailey insists, saying this is the only way to sustainably lift the standard of living.
Bailey also gives Keir Starmer some credit, saying:
Growth also requires strong institutions and public policies to provide a supportive environment. I welcome the Government’s strong commitment to growth and its initiatives to strengthen the UK’s relations to our trade partners.
The Prime Minister’s messages this morning were very positive and welcome news, setting out a course that can unleash further investments that will make a real difference to the UK economy.
Jes Staley fails to overturn ban for misleading watchdog over Epstein links
Newsflash: Jes Staley, the former CEO of Barclays, has failed to overturn a ban on holding senior management roles in the financial services industry.
Staley has lost a legal challenge against the UK regulator, leaving him banned from the City for life for misleading the watchdog over his relationship with the convicted sex offender Jeffrey Epstein.
Here’s the full story:
BCC: The reality of British business is hard, relentless and knackering
The British Chambers of Commerce were also reminded about the financial burden which the Starmer governent has put on businesses.
BCC director general Shevaun Haviland told today’s conference that she hears “frustration, irritation and exasperation” from companies around the country, as the economy continues to struggle.
She added:
The reality of British business is hard, it’s relentless, it’s knackering, it’s being endlessly creative, its seven days a week….and it’s absolutely essential for the UK’s future prosperity.
So, it’s not been helped by the Treasury demanding that business plug the black hole in its finances.
Haviland added that the size and scale of the rise in National Insurance Contributions took businesses by surprise; it has driven down consumer confidence, and contributed to a third of companies either making staff redundant or considering it.
