Closing post
Time for a recap…
The Body Shop has collapsed into administration in the UK less than three months after it was taken over by a private equity company, in a move that puts more than 2,200 jobs at risk at the cosmetics chain.
Aurelius, the German company that bought The Body Shop for £207m in November, said it had been unable to revive the fortunes of the business after dismal trading over Christmas and new year.
Aurelius confirmed it had appointed the accounting firm FRP Advisory as the administrator, raising concerns over the future of the business founded by the late environmental and human rights campaigner Anita Roddick in 1976.
The Body Shop has almost 200 shops in the UK as well as a distribution centre and head office.
Hopes of early interest rate cuts have faded on both sides of the Atlantic, after the latest economic data.
In the UK, wage growth slowed by less than expected at the end of last year, with average earnings (excluding bonuses) rising by 6.2% per year in the October-December quarter and total pay growth (including bonuses), down to 5.8%. Both fell from 6.7%.
Adjusted for inflation, real earnings were the strongest since summer 2021.
Analysts at Nomura predict the Bank of England might not cut interest rates until August.
But while the unemployment rate fell, the number of people out of work due to sickness remained worryingly high, while vacancies fell.
In another blow to central bankers, US inflation was higher than forecast in January.
The US CPI index slowed to 3.1% in January, higher than the 2.9% forecast, which dampened the odds of rate cuts in March or May.
Daniela Hathorn, senior market analyst at Capital.com, says:
We’ll likely have to wait for the second half of the year for the Fed to start cutting, but the issue isn’t so much whether the bank will cut rates this year, as that is an almost certainty at this point, but how many rate cuts there will be.
The year started with 150 bps of cuts being priced in. That has now dropped to 96 bps – or just under four 25bps cuts.
Stock markets have fallen into the red, with the FTSE 100 down 77 points or 1% at 7496 points.
The US dollar has rallied, while Wall Street is a sea of red:
Broad distributive pressure today after the hotter than anticipated US CPI data print.
— Markets & Mayhem (@Mayhem4Markets) February 13, 2024
Advancers are at just 11.1% vs decliners at 83.1%.
Really nasty market internals. pic.twitter.com/QbPXvfXc4Y
Here’s the rest of today’s news so far:
Rivals have stolen a march on what used to be the Body Shop’s “unique eco-credentials”, say Susannah Streeter, head of money and markets at Hargreaves Lansdown:
In the 1980s, the Body Shop was the place to go for young shoppers to splash out on fresh scented bubbles and beauty ranges, with a deep environmental conscience and a focus on social justice and conserving nature.
But now stores like Lush hold the bigger pocket money draw for tweens and teens, lured in by fragrant bath bombs and innovative product ingredients.
Body Shop stores could be forced to close unless a buyer is found for them, warns Roger Hutton, insolvency expert at law firm Clarion.
Following the appointment of FRP Advisory as administrators today, Hutton says:
News that Body Shop has collapsed into administration isn’t a surprise, given its run of financial challenges.
And with businesses trading against the economic backdrop of tighter lending and higher cost inflation, it’s a difficult environment for the retail sector as a whole.
While the Body Shop stores will continue to remain open while the firm is in administration, if a buyer for its stores is not found soon, they may be forced to close.
While it’s unclear whether this could have been prevented, the earlier a business gets advice the better. The earlier interventions are taken, the more solutions there are, such as securing financing on better terms, allowing more time to engage with shareholders and getting a head start on restructuring.
Now, time is of the essence here to secure the future of the brand. The focus needs to be on the UK arm of the business and effectively communicating a plan to employees and creditors.”
Appointing administrators will hopefully act as a springboard for The Body Shop’s future survival, says Jason Freedman, fraud and asset recovery partner at the law firm Gowling WLG.
While drastic changes will need to be made to its business model, the significant resonance which the brand still has with consumers can still be capitalised on if operational changes and a focus on cost reductions at all levels can be aligned with delivering against customer needs.
“That insolvencies are increasing will be of no surprise to anyone who has been paying any attention to the economy recently, Freedman adds:
Companies continue to weather the storms of Brexit, labour shortages and high inflation, often with balance sheets that are struggling to recover from the hit of the pandemic, and with the cost-of-living crisis hitting employees and customers alike.
Now, a prolonged higher interest rate environment is chipping away at margins and threatening to pick companies off as they need to refinance.
Directors of struggling companies need to be aware that there are many options now available to them to save or rescue their businesses, as long as they get the right advice as early as possible and engage with key stakeholders. The longer this is delayed, the fewer options remain.”
Today’s fall into administration comes 48 years after environmentalist and human rights activist Anita Roddick founded The Body Shop, in Brighton, in March 1976.
It was bought by cosmetics giant L’Oreal in 2006. But after an unhappy decade, The Body Shop was sold again, to Brazilian cosmetics maker Natura&Co for €1bn in 2017.
Six years later, Natura sold up to private investor Aurelius Group, in a deal worth £207m last November.
Updated
😢
I had a Saturday job at The Body Shop when I was in sixth form. I loved little kids bringing in their pocket money around Mother’s Day and making up the tiniest gift basket with one fruity soap and a couple of bath pearls for them. 😍
— DiscoAlpaca 💜🤍💚 ✂️ (@DiscoAlpaca) February 12, 2024
Here’s Tim Symes, partner in the Insolvency and Asset Recovery team at law firm Stewarts, on the appointment of administrators to run The Body Shop today.
“This could be a tactical administration appointment designed to shed creditors and cut costs following the purchase by new owners just before Christmas, or the directors simply had no choice.
Putting the business through administration will give immediate respite from creditors and allow a leaner, viable business to emerge, albeit with substantial creditor casualties in the form of suppliers and landlords.
As with Wilko, the business left standing is likely to be focussed on its online offering.”
The news that The Body Shop was heading into administration has sparked a flurry of reminiscences on social media, and memories of much-loved products:
Quite sad about The Body Shop news - it was one of my childhood happy places, showed us you could have fun with beauty products as well as care about the planet and the satsuma lip balm could not be beaten https://t.co/5PjZ7YDHYH
— Kirsty Weakley (@KirstyWeakley) February 13, 2024
Weirdly sad about The Body Shop. Of course, I've not shopped there for years and Lush stole a lot of the market. Dewberry and White Musk will last forever (just like the smell would on your clothes).
— Cath Feely (@cathfeely) February 13, 2024
I'm quite sad about this. As a teenager, pre Internet, the Body Shop not only bought White Musk into my life, but also made me aware of social issues. Before they sold out, they seemed like a force for good. https://t.co/Wz4qKDzb0X
— Vikki Guy (@vikkiguy1) February 13, 2024
The Body Shop appointing administrators is so sad. Difficult to convey how revolutionary it was in the '80s. The Body Shop on Elvet Bridge in Durham was one of my favourite places in the world. Things like fruit soap, lip balms & bath pearls were completely novel. I loved it. pic.twitter.com/gf5SfgmthE
— Luci Gosling (@lucigosling) February 11, 2024
The Body Shop was such a quintessential part of my teens I remember the soaps, the Henna hair die and the bath pearls, a place were perhaps people didn’t have to conform to conventional gender based beauty norms ? Having said that I hadn’t bought anything for years #ripbodyshop
— Dr Lucy Woollett (Lady Lucy) (@ydalycul) February 13, 2024
Updated
US inflation higher than expected, at 3.1%
Shortly after The Body Shop’s fall into administration was announced, new data showed inflation in the US has slowed – but not by as much as expected.
The headline rate of US inflation fell to 3.1% in January, down from 3.4% in December, but higher than the 2.9% reading which economists expected.
This may make it harder for America’s central bank, the Federal Reserve, to cut interest rates soon (it has a 2% inflation target).
JUST IN: U.S. inflation was 3.1% (y/y) in January, down significantly from 6.4% a year ago.
— Heather Long (@byHeatherLong) February 13, 2024
Falling prices for energy and many goods are really helping inflation cool off.
**Rent and car insurance/repair are the big drivers of inflation now.** pic.twitter.com/J29rzTM7D6
Bryce Doty, Senior VP and Senior PM at Sit Investment Associates, says:
From the Fed’s perspective, economic growth is strong enough that there isn’t a sense of urgency on cutting rates. While I’m not forecasting a recession, there are a number of warning signs that the consumer is stretched thin financially. Not only are credit card balances at all-time highs, people are also increasingly choosing “buy now and pay later” options. Another canary in the coal mine is the degree of complaining about food inflation even though most food prices have stabilized. It tells me that household finances are tight. We expect consumer buying habits to shift towards necessities over luxury goods.
Economic growth will slow, but continue to be strong enough to keep the Fed from cutting rates longer than they should. In the meantime, bond investors will get to enjoy higher yields a little while longer than many thought.”
Updated
The administrators taking control of The Body Shop have a number of options.
Jeremy Whiteson, restructuring and insolvency partner at legal firm Fladgate, explains:
Administrators have broad powers including to sell a business as a going concern, continue the trade, or break up the business and sell stock, brand and other assets.
Which of these routes they take will depend on the state of the company and the level of interest of potential buyers.
The administrators should try to act in the best interest of creditors. This makes for a worrying time for the staff of the groups’ 200 stores.
High street retailers are having a tough time, Whiteson adds:
They have been besieged by multiple challenges- the pandemic, restricted supplies after Brexit, tighter labour markets (leading to upward pressure on wages) and high fuel costs. For Body Shop, with its private equity owners, there is likely to be substantial debt that poses an additional concern as high interest rates increase the burden on the company.
It is hoped that a solution can be found which safeguards the jobs of staff. However, it seems likely that many buyers will simply be interested in the brand and stock, shifting the business to an online operation or to be integrated into a multi-brand retailer (such as Next or Frasers).
Heightened competition to blame for The Body Shop’s downfall, says GlobalData
Unable to keep up with its rivals, The Body Shop’s demise into administration comes as a result of increased competition in a thriving health & beauty market, say GlobalData analyst Tash Van Boxel.
GlobalData forecasts that the UK health & beauty market rose 7.1% in 2023 – but while rivals such as Boots and Superdrug outperformed the market, The Body Shop has lagged behind.
Van Boxel adds:
“The Body Shop’s success in the past was down to its distinct brand identity, with its focus on natural ingredients and fairtrade products being at the fore of its marketing, making the retailer ahead of its time.
While The Body Shop continues to stand by its ethical and cruelty-free brand values, these claims have become industry standards, weakening The Body Shop’s point of difference. Indeed, not only are brands now offering products with similar claims, but they also bring more to the table to attract shoppers.
For example, The Ordinary’s products are cruelty-free and vegan, but it also highlights its science-backed formulas at low price points.”
Full story: The Body Shop collapses into administration in UK
The Body Shop has more than 200 UK stores.
Sources familiar with the situation said they expected the brand to survive in some form but with far fewer shops. It employs more than 2,000 people in the UK.
Body Shop UK enters administration, putting jobs and shops at risk
Newsflash: The Body Shop has appoints administrators to run its business, and “accelerate” its restructuring.
Tony Wright, Geoff Rowley, and Alastair Massey of business advisory firm FRP have been appointed as Joint Administrators of The Body Shop’s UK business.
They will consider “all options” to find a way forward for the business, and will “update creditors and employees in due course”.
A statement just released from the administrators says:
The Body Shop remains guided by its ambition to be a modern, dynamic beauty brand, relevant to customers and able to compete for the long term. Creating a more nimble and financially stable UK business, is an important step in achieving this.
The Body Shop will continue to trade, with shops and the online site remaining open and making sales while the administrators conduct its restructuring.
The statement adds:
The Body Shop has faced an extended period of financial challenges under past owners, coinciding with a difficult trading environment for the wider retail sector.
Having taken swift action in the last month, including closing down The Body Shop At Home and selling its business across most of Europe and in parts of Asia, focusing on the UK business is the next important step in The Body Shop’s restructuring.
The Body Shop said last night that they intended to appoint administrators.
The move comes just three months after private equity firm Aurelius bought The Body Shop for £207m.
The process is likely to cause dozens of shop closures, putting jobs at risk and threatening a crucial source of sales for a global network of small farmers and producers.
Updated
Oil cartel Opec is sticking with its forecast for higher demand over the next two years.
In its latest monthly report, Opec forecasts global oil demand growth of 2.2m barrels per day in 2024, and 1.8m barrels per day in 2025.
Opec has also nudged up its estimates for world economic growth this year to 2.7%, up from 2.6%, and to 2.9% in 2025, from 2.8%.
The report says:
Global economic growth exceeded expectations in both 3Q23 and 4Q23, and the consistent momentum towards the end of the year is expected to carry over into 2024.
UK housing market has "turned the page" in January
The UK property market strengthened in January, new data from estate agent Hamptons shows.
Hamptons reports that there’s been a steep fall in the number of price reductions, while the pressure on sellers to accept offers below their asking price fell as houses sold faster than a year ago.
Here’s the details:
In January, sellers were less likely to cut their asking price than at any time over the last eight months. 48% of homes sold in January across England & Wales had been subject to a price reduction, down from a peak of 55% in October 2023.
The average seller in England & Wales sold their home last month for 98.9% of their asking price, up from 98.5% in both December 2023 and January 2023.
9% of homes that came onto the market in January sold within a week, up from 6% in January 2023… but lower than in January 2021 when 19% of homes sold within a week.
Aneisha Beveridge, head of research at Hamptons, said:
“The early signs in 2024 suggest that the market has firmly turned the page. Falling mortgage rates have been the primary catalyst, tempting last year’s missing movers to restart their property search. Consequently, more households were looking to buy last month than in any January over the last decade, including the start of both 2021 and 2022.
“First-time buyers and second steppers, who tend to be most reliant on mortgage finance, are at the forefront of the recovery. This injection of demand is starting to stabilise house price falls, particularly for mid to lower-priced homes, which should also improve selling conditions further up the chain as the year progresses. That said, the affordability picture is still more challenging than it was a few years ago which will keep a tight lid on price growth.”
Kevin Boscher, chief investment officer at investment group Ravenscroft, predicts the first UK interest rate cut will come in May – with up to one percentage point of cuts coming this year:
Whilst inflation surprises positively and hits its 2% target earlier than expected, we think the MPC will remain cautious given “sticky” services inflation, rising disposable incomes and wage inflation which is still on the high side although falling rapidly.
We expect the MPC to cut rates by 0.75%-1% this year starting in May.
Global investors are more optimistic that the world economy will avoid being driven into recession by high borrowing costs.
The latest poll of investors, from Bank of America, has found that 62% of respondents think the US economy will stay robust, surging up from 28% last month.
The proportion expecting an immediate US slowdown due to monetary tightening (high interest rates) has almost halved, falling from 61% to 32%.
Growth pessimism in Europe remains pronounced, however, with 62% expecting a weaker European economy given the drag from monetary tightening, down from 83% last month.
Troubled social housing investor Home REIT has told the City that it is being investigated by the Financial Conduct Authority.
The FCA has begun an investigation, covering the period from 22 September 2020 to 3 January 2023, Home REIT says, adding:
Naturally, the Company will cooperate fully with the FCA in its work.
Home REIT invests in the provision of sheltered housing for homeless people throughout the UK.
Last year it fell into crisis as tenants withheld rent due to problems with its properties, such as black mould and leaking ceilings.
It has also been targetted by short sellers, with one claiming its properties were overvalued and questioned its tenants’ ability to pay rent.
Home REIT’s shares have been suspended since the start of January 2023, after it missed the deadline to publish its annual report.
Some shareholders have claimed that Home REIT misled the market, and are bringing legal action against the company.
Updated
Oil hits two-week high
Fears that the Middle East crisis could push up inflation may deter the Bank of England from early interest rate cuts.
And policymakers will have noted that the oil price has hit its highest level in over two weeks this morning.
Brent crude has climbed by over 1%, to as high as $82.95 per barrel, the highest since 30 January.
Analysts at SP Angel Energy say:
Crude oil prices remain elevated as Israel’s military ramp-up strikes in Gaza targeting the southern city of Rafah, with the Houthis also continuing their attacks on vessels in the Red Sea.
The Bank of England will cut interest rates in June, predicts Kallum Pickering, senior economist at Berenberg bank.
Overall, he forecasts five quarter-point cuts this year, as pay growth continues to slow.
So far, the BoE has managed to pull off a mostly soft landing for the economy, while enabling a Goldilocks scenario for the labour market. But it is too soon to declare a complete victory.
Even though money market rates have fallen in anticipation of forthcoming rate cuts, past rate hikes are still feeding through the housing market and to businesses that are rolling over debt. To keep the labour market on track and to underpin a broader recovery in economic activity in 2024, the BoE will need to start to take its foot off the brake soon.
A likely further easing of wage growth over coming months should give BoE policymakers the confidence to start cutting rates from Q2 onwards. We continue to look for the first 25bp cut in June and five cuts overall in 2024 – lowering the bank rate from 5.25% to 4% by year-end.
Updated
Sam Tombs, chief UK economist at Pantheon Macroeconomics, shows here how rising sickness levels have pushed more people out of the jobs market:
The number of Brits who are economically inactive due to long-term sickness rose by a further 189K over the course of 2023, depleting the workforce by 0.5%. The economy's prospects would improve greatly if healthcare waiting lists can be stabilised or reduced. pic.twitter.com/dXXTdsbLTS
— Samuel Tombs (@samueltombs) February 13, 2024
The Bank of England is next due to set interest rates on 21 March.
The money markets currently indicate there’s a 95% chance that the BoE leaves rates on hold at 5.25%, and just a 5% chance of a cut.
At this month’s meeting, its monetary policy committee split 6-2-1, with six members voting to hold rates, two voting for a rise and one for a cut.
Deutsche Bank: Jobs data won't help rate cut hopes
Today’s labour market won’t be good news for doves at the Bank of England who hope to cut UK interest rates soon, says Sanjay Raja, Deutsche Bank’s chief UK economist.
Raja points to the drop in the unemployment rate to 3.8%, from 3.9%, and the stronger-than-expected wage growth:
The jobless rate – for what it’s worth – inched lower. Wage growth was a little stickier than we anticipated. And vacancies didn’t see the drop we expected.
Overall, today’s data leans more hawkishly for an MPC looking for sufficient evidence that the labour market is cooling
He adds:
Despite the slowdown in pay growth, today’s wage data leans a little more hawkishly – the MPC was projecting private sector pay growth to slip to 6% (3m/YoY) in Dec-23. [instead, it was 6.2%, as covered at 8.12am].
It’s now all up to the inflation data [7am tomorrow] to see whether spring rate cuts could still be on the table.
Updated
Amazon staff in Coventry walk out on 'Valentine's Day' strike
Amazon workers in Coventry have gone on a three-day strike in a long-running dispute over pay.
More than 1,000 GMB union members are striking until Thursday, to coincide with Valentine’s Day tomorrow.
Staff are demanding a pay increase to £15 an hour and the right to negotiate with the company over pay and conditions.
The strike comes after the GMB accused Amazon of resorting to “union-busting” tactics at its warehouses in the Midlands, with workplace message boards telling staff: “We want to speak with you. A union wants to speak for you.”
Updated
Traders cut bets on UK rate cuts after today's wage data
In the City, traders have been dialling back their forecast for how many times the Bank of England will cut interest rates this year.
Reuters reports that UK rate futures now predict 69 basis points of cuts this year, or slightly less than three quarter-point rate cuts.
Previously, the City had forecast 78bps of cuts this year, meaning cuts to 4.5% by December – from 5.25% today – had been fully priced in (but aren’t any more).
UK Rate Futures Point To 69 Basis Points Of Bank of England Rate Cuts By December Compared With 78 Bps Before Labour Market Data
— First Squawk (@FirstSquawk) February 13, 2024
Tui has reported a surprise profit and record revenues in the Christmas quarter, as investors in Europe’s biggest travel operator prepare to vote on plans to delist the company from the London Stock Exchange.
The executive and supervisory board of Tui, which is listed on the FTSE 250 and in Frankfurt, has recommended that shareholders vote in favour of a single listing in Germany at the company’s annual general meeting on Tuesday.
Shares in TUI have risen 3% in early trading.
Victoria Scholar, head of investment at interactive investor, says:
Despite pressures from the cost-of-living crisis, individuals and families continue to prioritise their trips abroad. Tui has managed to uphold demand even while simultaneously increasing prices, highlighting how the business holds significant pricing power to pass on additional cost pressures to consumers.
Meanwhile, the London Stock Exchange could be bracing for yet another blow, as Tui prepares to decide on whether to abandon its London listing. The travel operator is just the latest in a slew of businesses considering fleeing the LSE, to list in rival financial hubs instead like New York or Frankfurt. This comes after a period of weak price action in the UK post Brexit, resulting in discounted valuations for UK stocks.
Just this week shares in Arm have taken to the skies in New York, a painful reminder of that nasty blow to London’s public markets.”
Analysis: Buoyant UK labour market data belies rise in long-term sickness
On the face of it, Britain’s labour market is in rude health, but the underlying picture is less cheery, our economics editor Larry Elliott explains:
Employment rose in the final three months of 2023 and unemployment fell to 3.8%. Earnings, adjusted for inflation, rose for a sixth successive month. All are traditionally signs of strength – not an economy that may well have been in recession in the second half of last year.
Scratch beneath the surface and things look less rosy. The latest bulletin from the Office for National Statistics (ONS) reveals that one reason the jobs market is running so hot is because of a lack of workers caused by long-term ill-health. The number of people inactive for health reasons was 2.8 million by the end of 2023 – a rise of more than 200,000 on the year and a jump of 700,000 since before the Covid pandemic. In a literal sense, this is a sick economy.
The absence from the labour market of so many potential workers has consequences. There are still a high number of job vacancies, even though the economy has been flatlining for the best part of two years. While vacancies have been on a downward trend throughout this period, at 932,000 they are still above pre-Covid levels.
UK employers are trying to plug gaps in their workforces by employing more people from overseas, today’s labour market report suggests.
Simon French, chief economist at City firm Panmure Gordon, has created these charts showing the details:
Lots of sub level labour market indicators using the new LMS methodology. This one (below) on employment changes since end 2019 tells a story of extraordinary growth in non-EU born employment (up more than 1.2m), and UK & EU employment down by a combined 1.0m. pic.twitter.com/nXfLX1Wkzu
— Simon French (@shjfrench) February 13, 2024
Extraordinary move in inactivity rates too. Non-EU born inactivity rate down by almost 6 percentage points since Q4 2019 (29% to 23%) - whilst UK-born up 1.9%, or 660,000 to 22.3%. https://t.co/V78pANhehx pic.twitter.com/E8hoNSWkzL
— Simon French (@shjfrench) February 13, 2024
Whatever the narrative of recent labour market and population flows - the actual data (with obvious sampling caveats) suggests that non-EU born individuals have seen a remarkable increase in contribution to the UK labour market over the last four years. https://t.co/RsZPIQxqoa
— Simon French (@shjfrench) February 13, 2024
Full story: UK pay growth slows less than expected as workers bid up wages
Pay growth slowed less than expected in December as workers continued to bid up their wages amid skills shortages and a record number of people with long-term sickness, my colleague Phillip Inman writes.
The Office for National Statistics (ONS) said annual growth in regular earnings, excluding bonuses, was 6.2% in October to December 2023, while pay rises including bonuses was 5.8%.
City economists expected average earnings in the UK to drop significantly in the three months to December to 6% excluding bonuses and 5.6% including bonuses.
The modest fall will pose a dilemma for the Bank of England, which has signalled that pay rises need to moderate before it cuts interest rates.
After wages were adjusted for inflation, the ONS said workers enjoyed a fourth month of real wage increases. Total pay rose on the year by 1.6% above the consumer prices index and regular pay rose on the year by 1.9% in October to December 2023.
More here:
TUC: Conservative legacy is low pay, ill health and more insecure jobs
There was an increase in the number of people dropping out of the labour market because they were long-term sick in October-December, and also because they were students.
The number of those classed as economically inactive in the jobs market rose to 9.3 million in the final quarter of last year, with another jump in those off work due to long-term sickness, to a record 2.8 million, up 8.4% year on year.
The number of people economically inactive because they were looking after the family or home, or temporarily sick, fell – leaving the overall inactivity rate unchanged at 21.5%.
TUC general secretary Paul Nowak says:
“These figures show how people’s lives are being held back by the government’s failure to invest in our NHS.
2.8 million people are out of work because of long-term sickness and the numbers are still rising.
“Average pay is still worth £12 a week less than before the financial crisis 16 years ago and more than a million people are on zero hours contracts. The Conservative legacy is low pay, ill health and more job insecurity.
“It’s time for change. We need a proper plan for jobs, growth and public services to get living standards rising sustainably again.”
Updated
Nomura: BoE will start cutting rates in August
Analysts at Nomura predict the Bank of England could resist cutting UK interest rates until this summer.
They say this morning’s labour market data was stronger than expected, adding:
Although BoE governor Bailey said that March was live for cuts, we think stronger- than-expected wage growth and a still tightening labour market support the Bank cutting only in August.
December wage growth was stronger than expected, with upward revisions to the November print. The unemployment rate declined, compared with forecasts for a rise.
We think the Bank of England will likely continue to wait for a bit longer before it begins its cutting cycle, owing to heightened uncertainty and volatility over labour market and inflation data, opting for a “delayed reaction function” as Ben Broadbent has previously indicated.
Pound hits six-month high against the euro
The pound has hit its highest level against the euro since last August.
Sterling is up 0.2% at €1.1745 this morning.
It’s a sign that traders think the Bank of England may be slower to cut interest rates than the European Central Bank, given UK wage growth is stronger than expected
A record number of people who are economically inactive due to ill-health mean that Britain remains the only G7 economy yet to return to pre-pandemic employment levels, says the Resolution Foundation.
More happily, “fast falling inflation” means that real wages are growing at their fastest rate outside the pandemic in nearly five years, they add.
Rising sickness holds back return to pre-pandemic employment levels, but real wages enjoy a mini-revival - @hcslaughter_ on the latest @ONS labour market statistics https://t.co/InTvSUIWkJ pic.twitter.com/aCyHNLNuk5
— Resolution Foundation (@resfoundation) February 13, 2024
Public sector pay growth lagged behind the private sector again.
The ONS says:
Annual average regular earnings growth for the public sector was 5.8% in October to December 2023, which is not as high as it has been in recent periods but remains relatively strong; for the private sector this was 6.2%, with growth last lower than this in May to July 2022 (6.0%).
Vacancy numbers fall
There are still over 900,000 vacancies across the UK economy, despite another drop in the number of job opportunities.
The ONS says the stimated number of vacancies in November-January fell by 26,000 to 932,000.
On an annual basis, there are 209,000 fewer vacancies than a year ago, although the total is still higher than before the Covid-19 pandemic:
Alexandra Hall-Chen, Principal Policy Advisor for Employment at the Institute of Directors, says businesses are still struggling to access the labour and skills that they need to thrive:
“The increase in the economic inactivity rate over the past year, driven by historically high numbers of people reporting being long-term sick, is a particularly worrying sign of structural issues in the UK labour market.
Taken together with the government’s upcoming changes to legal migration rules, it is clear that urgent action is needed from government to increase domestic labour supply at the upcoming Spring Budget. Such measures should include delivering on the promised expansion to childcare provision and implementing measures to widen access to occupational health services.”
The UK labour market “continues to face challenges” as wage growth falls and long-term sickness remain historically high.
So says Ben Harrison, Director of the Work Foundation at Lancaster University, adding:
“For millions the cost of living crisis is not over, and yet the tide is continuing to turn on pay.
“Data shows there are now 2.8 million people who are economic inactive due to long-term sickness, which is at one of the highest levels since records began in 1993.
The recently revised ONS figures show that since before the pandemic, the UK now has just under 700,000 more working age adults out of the labour market due to work due ill health.
Chancellor of the Exchequer Jeremy Hunt has welcomed the news that real wages (earnings adjusted for inflation) have risen again, saying:
“It’s good news that real wages are on the up for the sixth month in a row and unemployment remains low, but the job isn’t done.
Our tax cuts are part of a plan to get people back to work so we can grow the economy - but we must stick with it.”
Pay growth slows: what the experts say
City experts believe the Bank of England will want to see a larger drop in pay growth before it feels confident it can cut interest rates.
Hugh Gimber, global market strategist at JP Morgan Asset Management, explains:
The recent trend lower in inflation, while good news, has largely been driven by a collapse in goods prices. The key watch item for the Bank lies in whether consumption reaccelerates as consumers find their feet. This would be good for growth but would also present upside risks to inflation, particularly in services sectors where prices tend to be more closely linked to wages.
As a result, with today’s print pointing to some signs of slowing in a still strong labour market, significantly more evidence of cooling is likely required before the Bank is ready to consider cutting rates.”
Jake Finney, economist at PwC UK, predicts that workers will see inflation-beating pay rises this year:
“The latest data suggests the UK has achieved its sweet spot, with declining vacancies taking the heat out of the labour market whilst unemployment remains relatively flat. This view is supported by the nominal pay growth data, which continues to soften.
“However, the lingering concern for the Bank of England will be that the labour market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target. This remains one of the key barriers to the base rate cut in May that markets are currently expecting.
“More positively, workers will welcome that pay is now growing in real terms. With inflation declining at a faster pace than pay growth, workers are likely to see real term pay rises throughout most of 2024.”
Ashley Webb, UK economist at Capital Economics, says the slower-than-expected easing in wage growth may mean the Bank doesn’t need to rush to cut interest rates (but tomorrow’s inflation report will also be important):
While wage growth fell further in December, evidence that the labour market may not be loosening much suggests wage growth may not fall as fast as we expect.
Not too important if UK enters shallow recession, Bank of England's Bailey says
Today’s jobs data comes in a busy week for economic news – with inflation statistics due tomorrow, followed by GDP on Thursday.
The growth figues may show that Britain fell into a technical recession at the end of 2023.
But last night, Bank of England governor Andrew Bailey said last night that he wasn’t overly concerned about a small drop in GDP in October-December.
Speaking after giving a lecture on banking at Loughborough University, he said he wouldn’t “put too much weight on that,” explaining:
“If we do get two successive negative quarters ... it will be very shallow. What I would put more weight on is that the indicators we have seen since have shown some signs of upturn.”
Lecture by Andrew Bailey Governor of Bank of England at Loughborough University pic.twitter.com/1KEJbOdtOV
— Cwm Tillery (@chakonthemove) February 12, 2024
Updated
Introduction: UK wage growth slows, but beating inflation
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK wage growth has slowed, as the jobs market continues to cool, but continues to outpace inflation.
Average earnings (excluding bonuses) grew by 6.2% per year in the October-December quarter, new data from the Office for National Statistics this morning shows, down from 6.7% the month earlier.
Total pay growth (including bonuses), slowed to 5.8% from 6.7%.
Both readings are higher than the City expected.
Much, but not all, of this wage growth is being eaten up by inflation, which ended 2023 at 4%.
If you strip out CPI inflation, then real total earnings rose by 1.6%, and regular pay grew by 1.9% – growth was last higher in July to September 2021.
That should help workers through the cost-of-living squeeze, but may disappoint the Bank of England which is looking for signs that inflationary pressures are easing.
Headline indicators for the UK labour market for October to December 2023 show:
— Office for National Statistics (ONS) (@ONS) February 13, 2024
▪️ employment was 75.0%
▪️ unemployment was 3.8%
▪️ economic inactivity was 21.9%
➡️ https://t.co/uUfa4WRA2u pic.twitter.com/9tmBH70gLz
Today’s jobs report also shows that the number of payrolled employees in the UK rose by 31,000 between November and December 2023, and rose by 401,000 over the year.
The unemployment rate has dropped to 3.8%, a rate last seen a year earlier in October to December 2022.
The employment rate rose to 75.0%, but the ONS warns that employment growth has slowed.
And the economic inactivity rate remains worryingly high at 21.9%, having been driven up last year by a rise in long-term sickness.
ONS director of economic statistics Liz McKeown says:
“It is clear that growth in employment has slowed over the past year. Over the same period the proportion of people neither working nor looking for work has risen, with historically high numbers of people saying they are long-term sick.
“Job vacancies fell again, for the nineteenth consecutive month. However, there are signs this trend may now be slowing.
“The number of days lost to strikes went up in December, with the majority coming from the health sector.
“In cash terms earnings are growing more slowly than in recent months, but in real terms they remain positive, thanks to falling inflation.”
The agenda
7am GMT: UK labour market report
10am GMT: ZEW index of eurozone economic sentiment index
1.30pm GMT: US inflation report for January
