Eurozone unemployment falls to record low; UK businesses push for closer relations with EU – business live

The next government must revise the fiscal framework in order to raise living standards and unlock spending on health, infrastructure and housing, according to the National Institute of Economic and Social Research.

In January, Keir Starmer ruled out breaking Labour’s fiscal rules to meet its green investment targets if it wins the election. But the current rules are arbitrary, NIESR said, and must be broken or redesigned if the government’s aim is higher growth and higher living standards.

The UK fiscal framework was set up with the aim of making public debt sustainable, in other words to ensure that the government is borrowing at a level that means it can meet its payment obligations while having the room to respond to economic shocks.

The current framework states that the debt-to-GDP ratio should be falling in the fifth year of forecasts by the Office for Budget Responsibility, and that net government borrowing should not exceed 3% of GDP.

NIESR said that such fiscal targets are arbitrary. The Institute for Government has said that successive governments have gamed the fiscal rules, by claiming to be adhering to fiscal discipline while announcing short term giveaways and longer term tax rises or spending cuts that never materialise.

Many long-term public investment projects do not make returns within five years, NIESR said, which stymies public investment that could help improve the debt to GDP ratio.

To revitalise the economy, NIESR is proposing three pillars of fiscal policy reform.

First, including the net worth of the public sector as a target, which provides a broader measure of the sustainability of public debt. Second, discounting public infrastructure investment from the deficit measure, separating it out from day-to-day spending.

Third, the government could establish fixed dates for fiscal events like the budget, in the same way that interest rates are decided by the monetary policy committee at set dates in the calendar. This would insulate budget announcements from short-term political goals, like winning elections, at the expense of long-term economic strategy, NIESR said.

A Bank of England facility which gives commercial banks cheap access to funds has seen record demand, again, amid worries that the money markets are running short of cash.

The BoE allocated over £17bn of one-week funds in its latest short-term repo operation this morning, the largest take-up since the facility was launched in October 2022.

The repo operation allows banks to borrow from the BoE at Bank rate, in return for handing over high-quality assets as collateral.

It is meant to keep short-term market interest rates in line with Bank Rate by ensuring banks don’t need to pay more to access reserves in the money markets.

But there are concerns that banks are tapping the short-term repo because market liquidity which is being drained as the BoE continue to sell bonds acquired through years of quantitative easing (QE). This “quantitative tightening” (QT) scheme involves the Bank selling bonds back to the market, leading to a drop in liquidity.

The Financial Times reported yesterday that analysts at Barclays, Bank of America and NatWest believe this scarcity of cash could cause the BoE to slow down the process of shrinking its balance sheet when it reviews its QT policy in September.

Newsflash: unemployment across the eurozone has fallen to a new record low, a week before Europeans head to the polls for the European Parliament elections.

Statistics body Eurostat reports that the seasonally-adjusted unemployment rate across the euro area fell to 6.4% in April, down from 6.5% in March. That’s the lowest since the single currency was created, Eurostat data shows.

In the wider EU, the jobless rate remained at 6%.

This suggests that the higher interest rates imposed by the European Central Bank to fight inflation is not hurting the labour market.

Eurostat estimates that 13.149 million persons in the EU, of whom 10.998 million in the euro area, were unemployed in April, adding:

• Compared with March 2024, unemployment decreased by 103 thousand in the EU and by 100 thousand in the euro area.

• Compared with April 2023, unemployment increased by 95 thousand in the EU and decreased by 101 thousand in the euro area.

Across the EU, unemployment was highest in Spain (at 11.7%) and Greece (10.8%) in April, and lowest in Czechia (2.7%) and Poland (3%).

At its peak, during the eurozone crisis in 2013, eurozone unemployment rose over 12%, but then fell steadily – before a brief spike in the Covid-19 pandemic.

The Bank of England has been doing its best to keep out of the general election campaign.

Earlier this week it cancelled all speeches by its policymakers for the duration of the upcoming 4 July General Election, meaning we shouldn’t hear any public statements from central bank officials until the public has voted.

That would prevent the Bank committing news, by commenting on the state of the economy, or hinting when it might lower borrowing costs.

Now, though, Rishi Sunak has piled into the void by claiming that a vote for the Tories is a vote for cuts to interest rates.

Sunak told The Times:

“Of course it is, because we are the party who has committed to bringing down inflation, which is a necessary condition for bringing down interest rates.

And I think people can see we have delivered that. And that allows us to think about the future in a more positive and confident way.”

Inflation is a funny beast – politicians are desperate to blame global factors when it’s going up, but rush to take the credit when it falls.

And either way, as the Bank of England is independent, it gets the credit for controlling prices (and the blame for losing control).

Anyway, Labour are warning that they would be starting from a difficult position if they win the election.

Darren Jones, Labour’s shadow Treasury minister, ruled out rises to income tax, national insurance or VAT, adding:

The fiscal inheritance is going to be really hard, it’ll be the worst that any party has inherited since the second world war.

A “do not travel” alert has been issued after a freight train derailed on a major route between England and Scotland, PA Media reports.

Services are being cancelled and delayed because of the incident on the West Coast Main Line between Carlisle and Oxenholme Lake District on Wednesday night, National Rail Enquiries added.

National Rail says:

A derailed freight train between Carlisle and Oxenholme Lake District means some lines are blocked.

Trains may be cancelled, revised or severely delayed by up to 60 minutes.

Major disruption is expected until 14:00.

Train operators Avanti West Coast and TransPennine Express issued the “do not travel” alert, urging passengers not to attempt to use their services for journeys between Preston and Scotland on Thursday.

Ticket holders can delay journeys until Friday or travel with other operators.

The cost rises hammering UK households has slowed in the last quarter.

The Office for National Statistics reports that UK household costs, as measured by the Household Costs Index (HCI), rose 4.4%, slowing from the annual rate of 5.3% in January 2024.

That chimes with the latest inflation data, which showed a slowdown in price rises this year.

Interestingly, higher income households saw the highest inflation rate.

Here’s the details:

• By comparison, household costs rose 5.0% for high-income households (decile 9) and 3.9% for low-income households (decile 2).

• By tenure type, mortgage and other owner occupier households had the highest annual inflation rate of 5.5%, reflecting rising mortgage interest payments; by contrast, the rate for outright owner occupiers was the lowest at 3.3%.

• Private renters’ HCI inflation rate was higher than social and other renters, at 4.6% and 4.3% respectively; this follows a period between October 2023 and January 2024 where the two groups had similar inflation rates.

• Non-retired households continued to experience a higher annual rate of inflation (4.8%) than retired households (3.4%).

• Households with children’s annual inflation rate fell to 4.8% while households without children fell to 4.2%.

In the property sector, the number of homes for sale in the UK is at the highest level in eight years, according to website Zoopla.

Zoopla reports that the supply of homes for sale is 20% higher than this time last year, with £230bn worth of housing for sale, up £45bn on this time last year.

This is likely to keep a lid on house price rises this year, Zoopla suspects, even though the upcoming general election could slow the pace of new sales in the coming weeks.

Zoopla also reports that there were modest house price falls across Southern England, as the north/south divide in annual house price growth continues.

They say:

This split in house price inflation is most evident at a city level with the the strongest house price growth in Belfast (+3.6%), Burnley (+2.5%) and Bolton (2.4%), and the highest house price falls in Ipswich (-3%), Hastings (-2.7%) and Norwich (-2.4%).