John Lewis hands shop workers 7.4% pay rise
Before I go, our retail correspondent Sarah Butler has sent this across:
John Lewis is handing its shop workers a 7.4% pay rise to a minimum of £12.40 an hour - with some deemed to have made an “exceptional contribution” to the group getting 2% more.
The group, which owns 36 department stores and the Waitrose supermarket chain, said it was investing £114m in raising pay for 65,000 people across the business, taking the minimum hourly rate well above the new legal minimum wage of £12.21 from April for over-21s. However the rate is 20p an hour behind Marks & Spencer’s pay rise announced this week and 31p behind B&Q’s latest rate.
John Lewis’s decision to hand an extra pay rise to some workers linked to performance is also likely to prove controversial at the staff-owned business which has not paid an annual bonus for workers for two years and is thought unlikely to announce award a bonus alongside its annual results next week.
In 2021, it emerged that 16 special contribution bonuses went to directors and heads of departments when the vast majority of workers did not receive an annual bonus.
Closing summary
The European Central Bank has cut interest rates across the 20-member eurozone for the second time this year, and warned that trade war fears were hurting Europe’s economy.
The Frankfurt-based rate setter cut its benchmark deposit rate by a quarter of a percentage point to 2.5%, in line with City economist expectations, as Donald Trump has threatened 25% tariffs on all goods imported from the EU, similar to levies on imports from Canada and Mexico that took effect this week.
The ECB president, Christine Lagarde, blamed a “high level of trade and policy uncertainty” for a downgrade in growth this year.
“We know that tariffs, and particularly if there is retaliation, are not good at all and are net negative on pretty much all accounts,” she told journalists at a press conference. She explained that the threat of tariffs is also damaging because such fears put “a brake on investment, on consumption decisions, decisions on employment, hiring and all the rest of it”.
There was better news on the battle against inflation, which the ECB said was moderating.
Economists concluded that there are more rate cuts to come but that the pace of easing will be slower.
The euro rallied, rising by 0.5% to $1.084. Sterling is also higher, up 0.1% to $1.2911, as the dollar continues to slide against major currencies.
Germany’s Dax has climbed 0.85% and the Italian stock market is 0.7% ahead while the French bourse is flat and the UK’s FTSE 100 index lost 0.77%, following a gloomy construction survey.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Take care – JK
Bank of England policymaker Catherine Mann is due to give a speech, entitled “Holding the anchor in turbulent waters,” in New Zealand later today.
In the text, just released, she explained her decision to vote for a bigger ‘activist’ half point cut at the Bank’s last meeting (when the rate-setting committee decided to cut by a quarter point):
In short, international spillovers have dominated the signals from UK domestic data and monetary policy actions. With substantial volatility coming from financial markets, especially from cross-border spillovers, the founding premise for a gradualist approach to monetary policy is no longer valid.
To conclude, unlike the Taihoro, New Zealand’s entry, which skimmed above the seas off Barcelona to win the Louis Vuitton 37th America’s Cup last year, monetary policy must navigate through choppy financial markets, shock-ridden economies, and sticky expectations.
Larger cuts, such as the one I voted for in the latest meeting, cuts through this turbulence, with the objective to more effectively communicate the stance of policy and influence the economy. At the same time, keeping monetary policy restrictive for longer allows me to evaluate developments on inflation persistence. This combination is an activist monetary policy strategy.
You can read the full speech here.
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More possible row back on US tariffs?
🚨 TARIFF LATEST: Secretary Lutnick tells CNBC that President Trump is likely to decide today to exempt *ALL* USMCA-compliant trade from the Canada and Mexico tariffs for one month, until April 2 (when other tariff wave is coming). Not just autos, which was the focus yesterday.
— Josh Wingrove (@josh_wingrove) March 6, 2025
Clemens Fuest, president of the Munich-based Ifo Institute for economic research sees no more scope for further interest rate cuts after today’s decision by the ECB.
The ECB’s interest rate cut was expected by the markets and had already been priced in. The main refinancing rate is now only just above the inflation rate.
Rising wages and the increase in new government borrowing could lead to inflation rising again instead of falling further. As a result, there is likely to be little scope for further interest rate cuts.
On tariffs and trade wars, Christine Lagarde said they are clearly bad for economies, and reiterated that fears of trade wars alone are damaging because they affect investment and hiring decisions.
We know that tariffs, and particularly if there is retaliation, are not good at all and are net negative on pretty much all accounts. But that’s my personal view. Although I think around the table of the governing council, we all agreed that it was net negative if it/ when it happens, and it’s even negative before it happens, because the uncertainty that is generated, the undermined confidence that results from just the threat of those tariff increases and potential retaliations, are putting a brake on investment, on consumption decision, decisions on employment, hiring and all the rest of it.
The press conference is now over.
Returning to the subject of higher defence spending in Germany and the rest of Europe, ECB president Christine Lagarde said:
Typically, investments in defence are a source of innovation, therefore will improve productivity. We are very attentive to that, and we are hoping that it will have those impacts on the European economy. Is it a ‘whatever it takes’ moment for the German economy? It’s not for me to say.
More rate cuts to come, but pace to slow, economists say
Economists conclude from the European Central Bank’s language today that there are more interest rate cuts to come, but the pace of easing is likely to slow.
The euro is still rallying, up 0.3% at $1.0822.
Thomas Pugh, economist at the consulting firm RSM, said:
Admittedly, this will be the last “easy” rate cut, the result of future meetings will be less obvious, and the pace of monetary easing will slow. But we still expect another two rate cuts this year.
There is now a debate on the ECB committee that rates may be hitting up against the neutral rate and further cuts would take them out of restrictive territory. The language in the press release signalled a slight shift to “monetary policy is becoming meaningfully less restrictive”. The statement also acknowledges that new borrowing is becoming less expensive. However, it also emphasised that new lending is weak and the economy faces challenges. Indeed, the committee increased its inflation forecasts slightly but lowered its growth ones, emphasising the trade-off between stickier inflation and weaker growth.
What’s more, there has been a step change in the risks facing the inflation outlook since the last meeting. The US has imposed large tariffs on its major trading partners and threatened 25% tariffs on the EU. A sharp increase in trade tariffs and retaliatory measures would be stagflationary for the EU (depressing demand while pushing inflation higher), which would create a tough policy trade off for the ECB.
At the same time, many European countries, especially Germany, are planning to substantially increase defence and infrastructure spending. This could represent a significant demand stimulus to the European economy that would boost growth and potentially inflation. Indeed, German 10-year yields have soared by over 40bps this week.
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Christine Lagarde said the governing council decided to cut interest rates almost unanimously – without any members opposing, but one governor abstained.
She named the governor who abstained as Robert Holzmann, an Austrian economist and the governor of Austria’s central bank.
The governing council, the main decision-making body of the ECB, has 26 members –– the six members of the Executive Board, plus the 20 governors of the national central banks of the euro area countries.
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She was also asked about the planned splurge in defence spending in Europe, and replied:
This is work in progress, and we have to be attentive, vigilant. We have to understand how this is going to work, what the timing will be, what the financing will be, so that we can then draw the conclusions and appreciate how much it will contribute to growth and what impact it would have eventually on inflation.
But one thing that around the table of the governing council was clear is that.. it would be supportive to European growth at large and would be a boost to the European economy.
The European Commission has set out a five-part plan to bolster Europe’s defence industry to raise nearly €800bn (£660bn) and help provide urgent military support for Ukraine after the US suspended aid to Kyiv.
Ursula von der Leyen, the head of the commission, said on Tuesday the 27-member bloc would propose giving member states more fiscal space for defence investments, as well as €150bn in loans for those investments, and would also aim to mobilise private capital.
Then on Tuesday night, the prospective partners of Germany’s next government, the CDU/CSU and SPD, agreed a deal to loosen the country’s debt brake to set up a €500bn infrastructure fund and allow effectively unlimited defence spending.
ECB president Christine Lagarde is now taking questions (after grabbing some water).
The first question is whether the phrase that monetary policy is “becoming meaningfully less restrictive” means the pace of rate cuts will be slower.
She responds that the central bank is “moving to a more evolutionary approach”.
A few weeks ago when we were at the G-20 [meeting] in South Africa, I used a comparison of the Cape of Good Hope, where you have warm water from the Indian Ocean and the cold water from the Atlantic.
And this is really where the position is at the moment, where we have the impact of the current monetary policy decisions that we take and have been taking, which is to cut rates, but at the same time, we still have the cold water of the Atlantic, meaning the remaining effects of decisions that we have taken over the course of time, and that’s really where we are at the moment, and that has led us to acknowledge the fact that our measures, that our monetary policy, is becoming meaningfully less restrictive.
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She added that higher defence and infrastructure spending in Europe could boost growth. Lagarde said at the press conference in prepared remarks:
The risks to economic growth remain tilted to the downside. An escalation in trade tensions would lower euro area growth by dampening exports and weakening the global economy. Ongoing uncertainty about global trade policies could drag investment down.
Geopolitical tensions such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East remain a major source of uncertainty as well.
At the same time, growth could be higher if easier financing conditions and falling inflation allow domestic consumption and investment to rebound faster. An increase in defence and infrastructure spending could also add to growth.
How would trade wars affect the euro, and inflation? She said:
Increasing friction in global trade is adding more uncertainty to the outlook for euro area inflation. A general escalation in trade tensions could see the euro depreciate and import costs rise, which would put upward pressure on inflation.
At the same time, lower demand for euro area exports as a result of higher tariffs and a rerouting of exports into the euro area from countries with over capacity would put downward pressure on inflation.
Explaining the central bank’s interest rate cut today, ECB president Christine Lagarde made reference to trade wars again.
According to the staff projections, exports should also be supported by rising global demand, so long as trade tensions do not escalate further.
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The ECB said in its statement, and analysts are picking up on this:
Monetary policy is becoming meaningfully less restrictive, as the interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up.
Mathieu Savary, chief European strategist at BCA Research, said:
The ECB delivered its widely expected rate cut and is set to ease further, with inflation projected to settle at target and growth headwinds persisting. However, by describing policy as ‘meaningfully less restrictive,’ the ECB acknowledges improving domestic conditions—and, crucially, that fiscal easing is pushing the neutral rate higher. As a result, the likelihood of the deposit rate falling below 2% has significantly diminished.
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The press conference has started. You can watch it live here.
Kyle Chapman, currency analyst at Ballinger Group, said:
The ECB cut for the sixth time today, taking rates down to 2.50% as the ‘disinflation process is well on track’ and ‘wage growth is moderating as expected’, but warned that rates are constraining the economy significantly less than before. The slightly more hawkish stance has given Bund yields an extra push and lifted EUR/USD back above 1.08 as expectations have been pared back for 2025.
The big debate going in was whether or not policymakers would think it appropriate to drop the ‘restrictive’ label. What we got was that rates are ‘becoming meaningfully less restrictive’. That sounds like an agnostic compromise from an increasingly fractured consensus within the ECB, and a split opinion on how much further there is to go.
With each step lower the hawkish resistance is naturally growing louder and that unanimous sense of direction is fading. 2.50% is clearly within the estimated range for neutral. This was the final cut on autopilot and further moves will no longer be clear-cut. That said, I think another move will come in April – big spending plans should begin to filter through in the next few years, but for now demand is still weak and there are plenty of headwinds from US trade policy on the way.
Mark Wall, chief European economist at Deutsche Bank, said:
The ECB finds itself in a challenging position between the threat of US tariffs in the near-term that could warrant further policy rate cuts — and a move into stimulative territory – and the growing commitment to higher defence spending over the next several years which will be required to secure Europe’s strategic autonomy. This environment requires a deft hand on the monetary policy lever and the preservation of policy optionality.
Here’s some reaction to the ECB’s interest rate cut.
Felix Feather, economist at the fund manager aberdeen, said:
Looking ahead, we expect the ECB to reduce rates to a neutral-looking 2% over this year. The ECB’s revised policy statement describes the current stance as “becoming meaningfully less restrictive”, indicating that the governing council might see some upside risk to that forecast.
Meanwhile, EU leaders are discussing ways to finance increased defence spending at a summit in Brussels today.
The possibility of significantly increased European deficit spending has prompted markets to price fewer rate cuts in recent days, while the long end of the curve has sold off even more sharply.
We think fiscal stimulus could boost growth by 0.5-1.0% in Germany and by 0.2-0.7% in the eurozone as a whole.
However, any tailwinds might come too late to stop the French economy falling into a technical recession. Following France’s Q4 0.1% GDP contraction, the high-frequency activity dataflow has been weak, with registered unemployment, PMI, and industrial production indicators now all flashing red.
In addition, the tailwind to growth from fiscal stimulus in Europe is likely to be at least partly offset by the US’ imposition of sectoral tariffs.
In sum, we continue to expect the ECB to take rates to neutral in relatively short order. But risks to this forecast – in both directions – are building. Weak near-term activity data and US tariffs could see the ECB cut more aggressively, but front-loaded fiscal easing could mean rates stay higher for longer.
The euro rose by 0.3% on the news to $1.0815 while government bond yields rose further.
Germany’s two-year bond yield rose to 2.25% from 2.22% just before the decision while Italian bond yields edged higher.
The euro and European shares have rallied this week after Germany announced that it would ramp up spending on infrastructure and defence, in a major fiscal sea-change. Borrowing costs have risen at the same time, visible in the surge in bond yields.
European leaders are meeting right now at a special European Council summit, called to discuss increases in defence spending to support Ukraine against Russia.
Stock markets are in the red now, though, with only Germany’s Dax up slightly (after rising by 1.1% this morning).
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The ECB also lowered its growth projections, saying “the economy faces continued challenges” – to 0.9% for 2025, 1.2% for 2026 and 1.3% for 2027.
It pointed to increased uncertainty around trade policies, in a reference to the threat of trade wars. New US tariffs announced by Donald Trump on imports from Canada, Mexico and China have sparked retaliatory measures, and he could target Europe next.
The central bank said:
The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty.
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ECB cuts interest rates by quarter point
The European Central Bank has cut interest rates for the second time this year, as expected.
The Frankfurt-based central bank’s governing council lowered its benchmark deposit rate by a quarter of a percentage point to 2.5%, alongside reductions to two other key rates.
It explained:
The disinflation process is well on track. Inflation has continued to develop broadly as staff expected, and the latest projections closely align with the previous inflation outlook. Staff now see headline inflation averaging 2.3% in 2025, 1.9% in 2026 and 2.0% in 2027.
The upward revision in headline inflation for 2025 reflects stronger energy price dynamics. For inflation excluding energy and food, staff project an average of 2.2% in 2025, 2.0% in 2026 and 1.9% in 2027.
Most measures of underlying inflation suggest that inflation will settle at around the governing council’s 2% medium-term target on a sustained basis.
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In just a couple of minutes, the European Central Bank will announce its latest interest rate decision, which is widely expected to be a quarter point cut.
Half an hour later, ECB president Christine Lagarde will explain the central bank’s thinking at a press conference in Frankfurt. We’ll be watching, of course.
Ahead of the decision, European stock markets are in the red with the exception of Germany’s Dax.
The bond selloff has continued – it started after news on Tuesday night that Germany intends to loosen its controversial debt brake to allow higher spending on infrastructure and defence. This means higher borrowing and has pushed the yield or interest rate, on German and other government bonds sharply higher.
The yield on the 10-year German bond, known as Bund, is up by 5 basis points to 2.83%, after hitting 2.929% yesterday.
Ireland's economy grows by 2.7% but output down in Q4
Ireland’s economy grew by 2.7% last year, better than expected, but recorded a decline in economic output in the final quarter of 2024.
This was just above the 2.5% expected by the Irish finance ministry and ahead of 2.6% growth in 2023 – despite a 1.1% economic decline quarter-on-quarter in the last three months of 2024, according to the Central Statistics Office.
The drop was driven by a fall of 27% in machinery and equipment, and a 3.3% decline in construction. Personal consumption grew by 1.6%, driven by spending on services (rather than goods).
As Ireland’s large multinational sector tends to distort gross domestic product (GDP), officials prefer to use modified domestic demand to gauge the strength of the economy. GDP grew by 1.2% last year, and by 3.6% quarter on quarter between October and December.
Finance minister Paschal Donohoe said the figures showed the “relatively healthy aggregate position of the domestic economy” alongside strong growth in tax receipts, according to figures published yesterday.
The external outlook, however, has become increasingly uncertain in recent months against a backdrop of increasing global fragmentation. As a major beneficiary of global economic integration, the Irish economy is exposed to the reversals currently underway.
He was, no doubt, referring to new US tariffs (on Canada, Mexico and China) and the prospect of trade wars.
Spire Healthcare shares slump on cautious outlook, hit by NICs
Spire Healthcare, the UK’s biggest private hospital provider, has reported lower-than-expected annual profits and was cautious about the outlook this year because of mounting cost pressures, sparking a sharp drop in its share price.
The company made a pretax profit of £38.3m last year, up 10.7% on 2023, with revenues rising to £1.5bn, up by 6.2% on a like-for-like basis. Its hospitals and clinics carried out more work for the NHS against a backdrop of long NHS waiting lists. NHS work rose by 8.8% year on year to £448.2m – £367.4m in hospitals and £80.8m in primary care.
The company, which also runs private GP practices, is battling higher wage and energy bills, which are estimated to reduce underlying earnings by £30m in 2025. It calculates up to £20m of extra costs from increases in the national minimum wage and national insurance contributions for employers, starting in April.
The FTSE 250-listed shares slumped 22% in early trading and are now down by around 16%.
At the same time, Spire is pushing through a cost saving programme of at least £30m this year, through a digitisation drive, such as automating bookings. It has already automated all of its procurement, and is moving administration out of hospitals into regional hubs.
Spire opened three new primary care clinics in Harrogate, Abergele in north Wales and Norwich, and intends to open five more around the country this year as it builds up its private healthcare network, including physio and mental health services via talking therapies.
There is a shift from people paying for private care out of their own pockets, faced with long NHS waiting lists, to more treatments being covered by private insurance, as more small and medium-sized firms are providing insurance to their staff.
People are now staying less than two days in hospital, on average, following hip and knee replacements, and Spire wants to get this down to 23 hours. Patients need to stay less long if they get fit and lose weight, where necessary, before the operation and are also given fluids and proteins to help them recover faster.
Justin Ash, the chief executive, said:
Insurance is growing because employers are working out a) they need to retain employees, b) that their biggest challenge is people who are on long term sick [leave] and as a country generally, our biggest growth challenge is the 2.8 million economically unproductive people.
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Here’s our full story on Poundland being put up for sale:
AJ Bell investment director Russ Mould said:
The FTSE 100 slumped on Thursday despite mining stocks enjoying strong gains on hopes of a reprieve on tariffs and expectations China will launch a big stimulus package.
The UK’s flagship index was dragged lower as several big names traded without the right to their next dividend and some corporate results disappointed.
News that Donald Trump is temporarily sparing carmakers from US tariffs on Canada and Mexico helped reinforce hopes there may be some flexibility in the new administration’s trade policy.
Later today the European Central Bank is expected to cut rates having been given a freer hand as inflationary pressures have eased.
At lunchtime, we are expecting the European Central Bank to cut interest rates by a quarter point.
Mahony said:
Today sees the ECB step forward, with markets largely counting a rate cut as a foregone conclusion. Instead, the question is more about the size of that easing, with some calling for an oversized 50bp cut.
Meanwhile, traders will increasingly start to concern themselves with trying to understand where this all ends, with the rapid decline in eurozone rates meaning that we may not be far off the so-called ‘neutral rate’.
The prospect of reciprocal tariffs being imposed by the US next month does raise growth concerns going forward, with the ECB having to help where possible. The fiscal boost looks to be coming in the form of a huge pledge to ramp up defence spending in the years to come, but that borrowing won’t come cheap given the sharp surge in borrowing costs seen in response to that announcement.
With that in mind, the likes of Lagarde will be well aware of their role in bringing borrowing costs down. With inflation likely to fall below 2% in the coming months, it does look like the bank stands in a good position to continue easing over the coming meetings.
Joshua Mahony, an analyst at Scope Markets, has looked at today’s moves.
The Dax continues to lead the way in Europe, continuing its impressive run higher as increased fiscal spending lifts growth prospects. With the German coalition taking shape, the prospect of a ramp-up in government spending does stand in stark contrast to the US where huge DOGE cost-cutting efforts provide the basis for economic weakness while they wait for the private sector growth to make up the shortfall. Ukrainian efforts to bridge the gap with the US in a bid to find a peace agreement appears to have done little to help strengthen their negotiating position as Trump pulls all military aid and knowledge sharing with Ukraine, arguably weakening the case for peace as Russia push for further expansion.
However, investors are clearly voting with their capital, as the prospect of European growth gains traction while US recession fears emerge. From a fiscal perspective, the prospect of a sharp increase in European debt as the US seeks to drive down their liabilities does highlight a strong possibility of euro-dollar strength driven by rising relative bond yields in Europe.
He has also looked at the mainland Chinese and Hong Kong markets.
Chinese markets continue the diversification theme for equity markets, with the Hang Seng pushing 3.3% higher overnight. The pledge to ramp up stimulus, increase the deficit to 4%, and maintain the growth target at 5% has lifted sentiment over the direction of travel for China despite the ongoing trade war with the US.
Meanwhile, the flow of capital into Chinese Ai names continues, with the announcement of Alibaba’s ChatGPT beating Gwen model helping to drive a 8% pop in the share price. With Alibaba up 42% over the past month, the 8% decline for Nvidia over that period highlights where the action is for tech traders right now.
FTSE slides 1%, pound and euro give up gains
Amid the gloomy outlook in UK construction and recruitment, the FTSE 100 index is sliding, down by 1% or 87 points to 8,667 and the pound has given up its gains.
The French market has lost 0.3% while the main German and Italian exchanges are still holding on to gains of about 0.2%.
Sterling has edged 0.1% lower to $12875, after rising above $1.29 in early London trading. The euro is more or less flat against the dollar now. Both currencies had hit fresh four-month highs earlier.
There is a special European council meeting today to discuss defence spending, to which Ukrainian president Volodymr Zelenskyy has been invited.
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As for the recruiters, Toby Fowlston, the Robert Walters chief executive, talked about low confidence among clients and candidates globally this morning.
Speaking on BBC radio 4’s Today programme, said there were some “pockets of growth” in Asia Pacific, but they were “limited”.
It’s really come down to just a lack of client confidence. We’ve seen increasing costs, we’ve seen interest rate challenges. So that’s the general theme across across the group in 2024.
In the UK, the firm has seen hiring in finance, supply chain and procurement, while the retail sector is tough, he said.
He flagged two key global issues going forward.
We are seeing talent and skill shortages globally. Now that’s only going to be exacerbated. We’re seeing the funnel at the top being lightened with graduate intakes. So that is going to present a problem over the course of the next one to two years in areas like finance, legal, because the flow of graduate recruitment coming through is going to be limited.
The other area is is obviously technology and obviously there are benefits with AI, clearly. But here was a an article by Anthropic, who are an AI startup themselves, and their quote was, they don’t want to see applicants using AI because they want to gauge applicants personal interests, sincerely and without mediation. And this is where we play our role.
Eurozone sees biggest slump in construction in three months
The eurozone saw the biggest slump in construction in three months in February, according to a separate survey.
There was a marked reduction in new orders while cost pressures eased, according to a monthly report from Hamburg Commercial Bank.
The headline index fell from 45.4 in January to 42.7 in February, indicating a sharper downturn.
The fastest decline was recorded in France, where the downturn gathered pace, also in Germany, while Italian companies experienced their first fall in activity levels since last November.
Housebuilding remained the worst performer in February, while civil engineering activity fell at the fastest pace in eight months, and commercial construction was also down sharply.
Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank, said:
Unpleasant signals come from the Eurozone construction sector as the HCOB eurozone construction PMI in February shows deepening weakness that does not seem likely to fade soon. The recession now encompasses all three major Eurozone economies: Germany, France, and Italy.
Although the ECB, particularly executive board member Isabel Schnabel, has signalled a pause in the rate-cutting phase to await further dynamics, the construction sector makes it clear that a delay in rate cuts in interest-sensitive areas can be fatal.
Weak demand now appears to be slowly affecting price developments, although input prices are rising slightly. Notably, subcontractor prices are rising again, despite a sharp decline in their usage.
The outlook remains deeply pessimistic. Order intake is falling sharply, and business prospects for the next twelve months, despite a significant increase from the previous month, remain in contraction. Employment is shrinking correspondingly.
In France, the construction sector is suffering from a sharp decline in new construction activity, leading to a drop in employment. In Germany and Italy, construction employment figures are also declining, driven by rising construction costs and a weakening construction economy.
Construction companies noted delayed decision-making among clients, reflecting squeezed budgets and concerns about the economic outlook, according to the S&P Global monthly survey. Some firms also noted the impact of cutbacks to business investment spending plans.
They laid off more people – the pace of job shedding was the sharpest recorded since November 2020. Typically, people who leave voluntarily are not being replaced, in response to cost constraints and fewer new project starts. This also led to the steepest fall in subcontractor usage since May 2020.
Tim Moore, economics director at S&P Global Market Intelligence, said:
Sharply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying. Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.
Construction companies remain optimistic overall about their growth prospects for the next 12 months, albeit less so than on average in 2024 amid increasing concerns about the broader UK economic outlook. There were also signs that rising payroll costs and purchasing prices have become a source of anxiety, with the latest increase in overall business expenses the steepest since March 2023.
UK construction in biggest downturn in nearly five years
Britain’s construction sector has suffered its biggest downturn since May 2020, according to a closely-watched survey.
There were steep declines in housebuilding and civil engineering activity during February, according to the latest purchasing managers’ index from S&P Global. At the same time, input cost inflation accelerated to the highest level in two years.
The headline index fell to 44.6 in February from 48.1 in January, further below the 50 mark that separates expansion from contraction. New work also fell at the fastest rate in almost five years.
Housebuilding, with the index at 39.3, pointing to a steep decline, fell for the fifth month in a row and was the weakest-performing area within construction.
Aside from the pandemic, the rate of decline was the fastest since early 2009. Firms cited weak demand conditions, elevated borrowing costs and a lack of new work to replace completed projects.
Civil engineering activity was similarly bad with the index at 39.5, while commercial construction displayed a degree of resilience with the index at 49, just below the 50 mark, with output levels falling only marginally and at a similar pace to that seen in the previous survey period.
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Recruiters Robert Walters, Page Group flag tough business conditions
UK recruiters Robert Walters and Page Group have highlighted tough business conditions.
PageGroup warned of heightened economic and geopolitical uncertainty across its key markets of the UK, France and Germany, as annual profits dropped by 58%.
Economic and political upheaval have weighed on confidence among businesses and led to a slowdown in both permanent and temporary hiring.
As PageGroup reported a lower-than-expected profit before tax of £49.1m, its chief executive Nicholas Kirk explained:
Market conditions remained challenging across all regions in 2024, with worsening sentiment and reduced confidence in Europe during the second half of the year.
Robert Walters reported a 14% slide in net fee income to £321.4m last year. It said confidence among clients and jobseekers were “subdued” throughout the year, impacting both specialist recruitment and volume hiring.
The company’s annual profit slumped to £500,000 from £20.8m the year before. The company has been investing in technology.
Toby Fowlston, the Robert Walters chief executive, said:
2024 was another challenging year for global hiring markets. Several factors acted to dampen client and candidate confidence levels, therefore slowing the pace of job moves and impacting our financial performance.
He said “it remains uncertain as to when a sustained improvement in hiring markets will commence”.
The company also flagged the upcoming rise in national insurance contributions for UK employers as an additional cost burden. It will kick in at the same time as the national minimum wage goes up.
Robert Walters said:
Employer caution remains high ahead of forthcoming national insurance contributions increase.
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ITV production arm reports record earnings after Mr Bates vs the Post Office
In corporate news, ITV’s profits jumped in 2024 thanks to record earnings at the British broadcaster’s production arm, ITV Studios, as it benefited from hits including Mr Bates vs the Post Office, the Jilly Cooper adaptation Rivals and Fool Me Once.
The FTSE 250 company said revenues were down 3% to £4.1bn in 2024 compared with the previous year, but its measure of adjusted profits was up 11% at £542m. Profit before tax more than doubled to £521m, up from £193m a year earlier.
ITV has been seeking to make itself less reliant on the volatile earnings from its UK broadcast TV channels, with investors expecting linear television to wither as the shift to online streaming services such as Netflix, Amazon Prime and Disney+ progresses.
Beijing has also adopted a defiant attitude in the face of new US tariffs.
China’s ministry of foreign affairs has promised that China will “fight to the end” with the US in a “tariff war, trade war or any other war”, marking China’s strongest rhetoric on US president Donald Trump since he entered the White House.
On Tuesday, in response to Trump imposing an extra 10% tariff on Chinese goods, taking the cumulative duty to 20%, China’s foreign ministry spokesperson Lin Jian said: “Exerting extreme pressure on China is the wrong target and the wrong calculation … If the US has other intentions and insists on a tariff war, trade war or any other war, China will fight to the end. We advise the US to put away its bullying face and return to the right track of dialogue and cooperation as soon as possible.”
The comments about “any other war” were shared on X by the spokesperson for ministry of foreign affairs. The post was then re-posted by the Chinese embassy in the United States. The embassy reiterated the message, writing: “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Bank of England governor Andrew Bailey warned yesterday that a full-blown trade war would pose a “substantial” threat to the British economy, after Donald Trump imposed 25% tariffs on Canada and Mexico, and a further 10% levy on China.
Bailey said any imbalances, such as China’s big current account surplus, should be addressed in “multilateral forums” rather than bilaterally.
Ultimately, the biggest impact of a trade war could be on productivity, a measure of economic efficiency, according to Bank rate-setters. For example, increases in productivity through the introduction of new technologies allow the economy to expand without boosting inflation.
A breakdown in transatlantic “information sharing” could have a major impact on productivity growth, Huw Pill, chief economist at the Bank of England, told MPs on the Treasury select committee.
“The relationship is broken” is how Canadians responded to Trump’s tariffs.
“Since Trump began his tariff threats against Canada and his ‘jokes’ about making Canada the 51st US state, I have not bought a single product originating in the US,” said Lynne Allardice, 78, a retired business owner from New Brunswick, Canada.
“Not a single lettuce leaf or piece of fruit. I have become an avid reader of labels and have adopted an ‘anywhere but the US’ policy when shopping. I will not visit the States while Trump remains in office, and most of the people I know have adopted the same policy.”
Acquaintances, Allardice added, were selling US holiday properties they had owned for many years.
The Jack Daniel’s maker Brown-Forman’s CEO Lawson Whiting said yesterday that Canadian provinces taking US liquor off store shelves was “worse than a tariff” and a “disproportionate response” to levies imposed by the Trump administration.
Several Canadian provinces have taken US liquor off store shelves as part of retaliatory measures against Donald Trump’s tariffs.
“I mean, that’s worse than a tariff, because it’s literally taking your sales away, [and] completely removing our products from the shelves,” Whiting said on a post-earnings call.
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European shares extend gains, bond yields jump again
The German stock market has extended gains, with the Dax in Frankfurt opening 1.1% higher. Investors have been cheered by what economists nickname Berlin’s “big bazooka,” a fiscal sea change that could revive the German economy.
Other European stock markets are also pushing higher, extending yesterday’s rally, amid hopes of easing US tariffs, after the one-month reprieve for carmakers from new levies on Canada and Mexico.
France’s CAC is 0.6% ahead while Italy’s FTSE MiB has climbed more than 1%. The pan-European Euro Stoxx index has risen by 0.5%.
The FTSE 100 index in London is bucking the trend, down by 0.2% or 17 points at 8,737.
Germany’s borrowing costs are still rising after the prospective partners in the next German government agreed on Tuesday night to loosen the controversial debt brake to allow higher spending on infrastructure and defence.
The yield, or interest rate, on the 30-year German government bond has risen by 8 basis points to 3.15% this morning, after jumping by 25bps at one stage yesterday. The yield on the 10-year bond is up by 10bps to 2.886%.
The yield on the two-year UK government bond, known as gilt, is also surging, rising by 11bps to 4.396%, the highest since 21 January.
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UK rate expectations shift; BCC predicts 'long and challenging year for UK businesses'
Interest rate expectations have shifted in the UK. Financial markets are no longer fully pricing in two rate cuts by the end of the year, predicting 45 basis points of reduction from the current 4.5% base rate by December.
The shift came during yesterday’s Treasury select committee hearing, when Bank of England governor Andrew Bailey and other policymakers discussed the economic outlook.
Meanwhile, the British Chambers of Commerce (BCC) is predicting “a long and challenging year for UK businesses”.
It has become more gloomy about the growth outlook for the UK and said firms will struggle to invest as they deal with a raft of rising cost pressures.
The business lobby group now expects the UK economy to grow by 0.9% this year, revised down from its previous forecast of 1.3%. This year’s limited growth will be driven largely by increased day-to-day government spending. Growth is expected to accelerate slightly in 2026 to 1.4%, but that is also slightly down from the last forecast of 1.5%.
With businesses facing increased cost pressures following the autumn’s budget, inflation is now expected to remain above the Bank of England’s target until the last quarter of 2027. Inflation is forecast to be 2.8% by the end of this year, up from 2.2% in the last forecast, before falling to 2.1% by the end of 2026 and 2% in the fourth quarter 2027. The BCC expects unemployment to rise to 4.6% by the end of this year, from 4.4% now.
With stubborn inflationary pressures in the economy, the BCC is forecasting the Bank of England will continue to take a cautious approach to interest rate cuts. It expects just one cut in the base rate to 4.25% by the end of 2025, rather than two cuts to 4% as previously forecast. The rate is seen falling to 4% in 2026. No further cuts are then predicted through to the end of 2027.
Vicky Pryce, chair of the BCC Economic Advisory Council, said:
This is going to be a long and challenging year for UK businesses. The BCC’s forecast shows an economy struggling without the secure foundations to kickstart business investment.
Inflation will continue to be stubborn this year forcing the Bank of England to keep interest rates relatively high. Global uncertainties will add further dark clouds to the economic climate.
Businesses can’t simply rely on the promise of long-term strategies from government, they need support now to invest, recruit and trade.
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Introduction: Pound rises above $1.29 as Trump fears hit dollar; Poundland chain up for sale
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The pound has risen further to the heady heights of $1.29. It’s now trading above that level at $1.2916, the highest in four months and up nearly 0.2%.
Sterling has been boosted by a general slide in the US dollar, and a brighter mood in markets following a reprieve on US tariffs and the prospect of higher infrastructure and defence spending in Europe, led by Germany.
The dollar slid further against a basket of major currencies, after news that Donald Trump will exempt carmakers from 25% tariffs on Canada and Mexico for a month as long as they comply with free trade rules.
The euro also continues its rally and has hit a four-month high against the dollar, amid optimism sparked by Germany’s proposed €500bn infrastructure fund and overhaul of its borrowing rules. The European single currency rose by 0.3% to $1.0820 for the first time since 7 November.
Asian stock markets bounced, led by Hong Kong’s Hang Seng, up by 3.06% while Japan’s Nikkei climbed by 0.77%. In China, the Shanghai Composite rose by 1.17% while the Shenzhen Composite gained 1.77%.
The South Korean Kospi added 0.7%, despite news that a pair of fighter jets accidentally dropped eight bombs in a civilian district during a military exercise. Fifteen people were injured, two of them seriously.
European discounter Pepco Group said it is evaluating all strategic options to separate its struggling 825-store Poundland business in Britain this year, including a potential sale.
Ahead of an investor day, the Warsaw-listed group, which also owns the Pepco and Dealz brands, said it will focus on the Pepco brand “as the single future format and engine driver of group earnings”.
Pepco said in December it was considering options for the Poundland chain after it booked a €775m impairment charge, plunging the group to an annual loss of €662m.
Group like-for-like sales were up 1.5% in the eight weeks to 2 March, “with a strong performance from Pepco and Dealz offset by continued challenges at Poundland”.
The agenda
8.30am GMT: Eurozone HCOB construction PMI
9.30am GMT: UK S&P Global Construction PMI
10am GMT: Eurozone retail sales for January
1.15pm GMT: European Central Bank interest rate decision (quarter point cut forecast)
1.30pm GMT: US trade for January, initial jobless claims for week of 1 March
1.45pm GMT: ECB press conference
2.45pm GMT: ECB staff macroeconomic projections3.15pm GMT: ECB president Christine Lagarde speech
8.15pm GMT: Bank of England policymaker Christine Mann speech
