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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound, shares and bonds rally as US inflation slows to 3.2% – as it happened

United Kingdom Inflation United States Office for National Statistics
The floor at the New York Stock Exchange on Wall Street
The floor at the New York Stock Exchange on Wall Street Photograph: Brendan McDermid/Reuters

Afternoon summary

Time to recap

Government bond yields have dropped sharply, and stocks have surged on Wall Street, after US inflation fell more than expected.

The annual US Consumer Prices Index dropped to 3.2% in October, down from 3.7% in September, a bigger drop than expected.

Prices were flat on a monthly basis, as inflationary pressures eased.

The data bolstered hopes that the US Federal Reserve will not raise interest rates again, and will start cutting next year.

Bond prices jumped, pushing down the yield (or interest rate) on US 10-year Treasuries by aroudn 20 basis points to 4.4%, down from 4.6%.

The dollar also weakened, driving up the pound by 1.8 cents to $1.246, a two-month high.

Wall Street has rallied strongly, with the S&P 500 index up 1.8% in morning trading.

Here’s the full story:

In other news…

Business insolvencies in England and Wales rose 18% year-on-year in October, as firms struggled under the weight of higher interest rates.

UK real pay has grown at its fastest rate in two years, according to new data which suggests Britain’s labour market has so far emerged largely unscathed from the slowdown in the economy.

The latest health check from the Official for National Statistics found the jobless rate broadly unchanged, a small fall in employment and the strongest rise in pay adjusted for inflation in two years, as the pace of prices rises comes down.

The ONS said the UK’s unemployment rate in the three months to September had remained steady at 4.2% while the employment rate over the same period had dropped by 0.1 points to 75.7%.

The UK boss of McDonald’s has told MPs that widespread cases of sexual harassment and bullying at its fast food shops are “truly horrific” and that the company is doing everything it can to eradicate them.

The world’s biggest offshore wind developer, Denmark’s Ørsted, has lost two of its most senior executives after it abandoned a pair of windfarm projects off the US coast at a cost of more than £3bn.

One of Britain’s biggest property developers is shifting its London portfolio from the City of London to the West End as tenants want to be in vibrant locations with easy access to shopping and leisure activities.

Ministers have come under further pressure to expand the financial support for Britons struggling with the cost of living crisis, after a committee of MPs found some had “slipped through the safety net”.

Pfizer cutting 500 jobs in Kent

Back in the UK, around 500 jobs are to go at pharmaceuticals giant Pfizer’s Kent site.

Sky News reports that the roles are to be cut as Pfizer is discontinuing its pharmaceutical sciences small molecule (PSSM) operations at Sandwich in Kent, the company confirmed to Sky News.

It’s part of a company-wide cost-cutting program, Pfizer said.

Affected staff were notified on Tuesday morning and consultation with these employees is under way.

Update: A Pfizer spokesperson says:

As previously announced, Pfizer has launched an enterprise-wide cost realignment program. Various areas of Pfizer’s global enterprise are making changes to operate more efficiently and effectively. These changes will be implemented on a rolling basis and will differ area to area.

One of the consequences of this program is a plan to consolidate our Pharmaceutical Sciences Small Molecule (PSSM) capabilities, aligned around our portfolio priorities. Therefore, the company has made the difficult decision to propose a discontinuation of our PSSM operations at Sandwich, Kent, impacting approximately 500 roles. Under the proposals, other functions at our Sandwich site will continue with a different size.

Updated

Full story: US inflation cools to 3.2%

The rate of US consumer price rises cooled in October amid lower gasoline prices and slowing increases in housing costs.

The annual rate of inflation measured by the Consumer Price Index (CPI) – which tracks the cost of a basket of goods and services – slowed to 3.2% last month, lower than the 3.7% reading in September and the coolest rate since July.

In another encouraging sign, over the month prices remained unchanged after rising by 0.4% in September. Core prices, a measure that excludes the volatile food and energy sectors, were up 4%, also a bit slower than in September.

US inflation has fallen from a 40-year high of 9.1% in June 2022. Despite the trend, the Biden administration has polled badly on its handling of the economy.

In a statement, Biden celebrated the news.

“Today we saw more progress bringing down inflation while maintaining one of the strongest job markets in history,” he said. “I’m working to get results for the American people and it’s happening – and I’m not going to let up for one second.”

The energy index decreased 4.5% for the 12 months ending October. Prices for used cars, which shot up after the pandemic, and airline tickets also fell. Housing costs have also been a big driver of US inflation. The shelter index increased 0.3% in October, down from 0.6% the previous month.

More here.

Updated

Pound hits two-month high

Sterling is continuing to strengthen against the US dollar.

It’s now up by 1.7 cents, or 1.4%, to $1.2450, a two-month high.

Wall Street opens higher

Stocks are rallying hard on Wall Street at the start of trading, as investors celebrate the drop in US inflation.

The Dow Jones industrial average has gained 1%, or 349 points, to 34,687 points.

Technology stocks are rallying strongly, pushing the Nasdaq Composite index up by 2%.

Traders appear confident that US interest rates are at their peak, and expecting rate cuts next year.

Ronald Temple, chief market strategist at Lazard, explains:

“The immaculate disinflation continues.

Over the last 5 months, core CPI has annualized at a rate of 2.8% as subsiding shelter inflation and falling core goods prices reduce pressure on consumers.

Absent any exogenous shocks, the Fed is increasingly likely to be in a position to cut rates in the second quarter of 2024.”

Updated

The chief economist of the Bank of England has warned that UK wages are growing too fast to be consistent with its 2% inflation target.

Huw Pill said this morning’s labour market data showed a weakening of pay growth, but cautioned:

“We did have this morning the latest official data on pay growth in the UK with pay growing at 7.7%. And that’s a little bit off where it was.”

Speaking at a discussion about central banks at the Bristol Festival of Economics 2023, Pill added:

“But actually over the summer pay growth has remained very strong and we certainly wouldn’t see pay growth of that rate as consistent with achieving the 2% inflation target on an ongoing basis.”

The next UK inflation report, due at 7am tomorrow, is expected to show a sharp fall in the annual CPI index, from 6.7% to around 4.8%.

Pill said the BoE was watching for a fall to “around 5%”, but added:

“Nonetheless, 5% is still much too high.”

Halifax, First Direct and HSBC UK cutting mortgage rates

Back in the UK, several major lenders have announced new mortgage rate cuts, widening the choice for borrowers searching for deals under the 5% mark.

First Direct announced rate cuts of up to 0.40 percentage points from Tuesday, PA Mediia reports.

Halifax also announced cuts to its mortgage rates by up to 0.46 percentage points from Wednesday.

This includes cutting a five-year fix for borrowers with a 10% deposit by 0.24 percentage points to reach 4.97%.

The lending giant will also be reducing a five-year fix for borrowers with a 40% deposit by 0.20 percentage points, to 4.53%. Both Halifax deals have a £999 fee.

HSBC UK is also expected to make widespread reductions to its mortgage rates on Wednesday. The details have not yet been announced.

First Direct said it is the most substantial round of mortgage rate drops it has made since February this year.

It has also launched two new mortgages for borrowers with a 5% deposit.

The underlying trend is that US inflation returning to near normal, reports economics professor Justin Wolfers of the University of Michigan.

Today’s US inflation data is a further signal that the Federal Reserve’s work on interest rates is probably done, says Lindsay James, investment strategist at Quilter Investors:

James says:

Although core inflation is currently declining only slowly, there are increasing signs this will speed up in early 2024 amidst a softening economic backdrop, and so whilst central bankers seem keen to end all talk of future rate cuts, they are likely to be disappointed on this front. Managing the message around the path of interest rates may become trickier should the data appear to be more positive than expected.

“The release highlighted the impact of falling energy prices, something that will be mirrored across other advanced economies, with the energy component down 4.5% year-on-year in October and down 2.5% month on month. However shelter inflation, which constitutes one of the largest components of US CPI, remained stubbornly high, rising 0.3% month on month.

As a result, the path back down to target is going to be a long and arduous one, and may just give the Fed enough cover to ignore the calls for rate cuts for now, no matter how noisy they get.”

Wall Street futures have surged, with the Dow Jones industrial average set to jump over 1% when trading begins in under 40 minutes.

Soft landing 'looks likely' as US inflation falls

US inflation continues “on a downward trend”, says Richard Garland, chief investment strategist at Omnis Investments, adding:

This should reaffirm the Fed’s view that interest rates are restrictive enough to bring inflation back to target, albeit they will keep rate hikes on the table until a low 2% inflation handle heaves into view.

lthough a comforting inflation reading is still some distance away, the labour market is weakening and economic growth is set to slow as consumers reign in their spending; a soft landing for the economy still looks most likely, but downside surprises in economic growth could change the Fed’s focus next year.

Updated

Richard Flynn, managing director at Charles Schwab UK, says today’s drop in US inflation means the US Federal Reserve is less likely to raise interest rates higher.

Flynn explains:

Today’s figures show that the rate of inflation has fallen compared to last month, making the prospect of a soft landing ever more likely. The numbers revealed today indicate the Fed is inching closer to its 2% CPI target.

The drop in inflation suggests that recent monetary policy has been doing its job. This good news reinforces the likelihood that the Central Bankers will hold off from further rate hikes in this cycle, which is the direction they seem to be leaning in any case. With wage growth slowing and sectors such as manufacturing losing pace, there is a risk that further tightening could trigger a problem in the economy.

Higher rates in the US would also make it more expensive to borrow in US dollars, creating difficulties for emerging-market economies that do so. All in all, “higher for longer” looks like a much more sensible move than “even higher”.”

Government bond prices are also strengthening, on relief that US inflation fell more sharply than expected last month.

This has pushed down the yield (or interest rate) on US Treasuries, and also on European government bonds.

Dollar slides as inflation falls

The dollar is tumbling, after US inflation fell more quickly than expected last month.

This has pushed the pound up by a whole cent, to $1.239, the highest in a week.

The euro has also gained against the dollar, up nearly a cent to $1.079.

Updated

US inflation falls to 3.2%

Newsflash: Inflation in the United States has dropped by more than expected, as price pressures continue to ease.

The US consumer prices index rose by 3.2% in the year to October, below the 3.3% expected, and down from the 3.7% recorded in September.

Core inflation, which strips out food and energy, fell to 4.0%, the lowest since September 2021.

Energy prices fell by 4.5% over the last year, while food inflation was 3.3%.

On a monthly basis, CPI was unchanged in October compared with September, a slowdown on the 0.4% rise recorded a month ago.

This may reassure America’s central bankers that they are winning in their battle to bring down inflation, meaning that further interest rate increases may not be needed.

Updated

The UK’s Serious Fraud Office has carried out a series of dawn raids and arrests in connection with the collapse of law firm group Axiom Ince.

The SFO arrested seven individuals and raided nine sites around Bedfordshire on Tuesday morning, the Financial Times reports, as it announced a formal investigation into allegations of fraud at Axiom and £66mn of missing client money.

The SFO’s action comes almost seven weeks after British police launched a criminal investigation into Axoim, which admitted in mid-September that £64m of client money has largely disappeared, seemingly used to fund several takeovers.

In August, three Axiom Ince directors were suspended by the Solicitors Regulation Authority.

SFO director Nick Ephgrave, who began his role in September, has told the FT that the operation highlighted a new approach to investigations under his leadership.

Ephgrave says:

“We accepted the investigation on September 5 and a few weeks later we’re going through doors, gathering evidence and making arrests, and that’s the kind of approach I’m encouraging here.”

We have “gone from flash to bang quite quickly”, he added.

In the currency markets, the rouble has hit its highest level against the US dollar since August.

Russia’s currency strengthened to 90.6 roubles to the dollar, extending a recent rally since the start of October (when the rouble weakened through 100 to the dollar).

The rouble has benefited from recent interest rate increases, as Russia’s central bank has tried to support the currency.

Moscow has also imposed additional currency control, restricting western companies that sell their Russian assets from taking the proceeds in dollars and euros, which also helped the rouble.

Bus workers to strike, but BBC dispute resolved

Bus workers are to stage a series of strikes in a dispute over pay.

Members of the Rail, Maritime and Transport union (RMT) at Stagecoach East Midlands will walk out for 48 hours from November 27 and for the same period from December 4, 11 and 18 after voting in favour of industrial action.

RMT general secretary Mick Lynch said:

“The huge endorsement for strike action by our Stagecoach members reflects the growing disgust among bus workers at being taken for granted while their pay continues to fall in real terms.

“Management need to come up with a reasonable offer that deals with the poverty pay and poor conditions in the industry.

“However, if Stagecoach bosses remain intransigent, our members are fully prepared to take further industrial action on and into the new year if necessary.”

But peace has broken out at the BBC, where journalists have voted overwhelmingly to accept a deal on jobs and programming, ending a long-running dispute.

Members of the National Union of Journalists (NUJ) in BBC Local backed the deal by 70% after previously taking industrial action.

Paul Siegert, NUJ broadcasting organiser, said:

“This is an overwhelming result in our long-running dispute at BBC Local. We’ve gained significant safeguards on jobs and income protection for NUJ members, along with new concessions on radio news bulletins and shared programming.

Here’s Georgia Quenby, Partner at City law firm Fladgate, on today’s insolvency data:

The October 2023 insolvency statistics show a continuation of the post-pandemic trend of a significant increase in the numbers of CVLs, a doubling of the number of CVAs from 11 to 23 and a further increase in administrations from 125 to 146 as against September 2022.

For context, these 23 CVAs represent more than 4 times as many CVAs than October 2022. At 146, the number of company administrations is 36% higher than October 2022, but this is a slight slowing of the rate of increase in administrations bringing the curve much more into line with historic averages.

The CVLs are likely to reflect a continuing “clear-out” of small businesses which have ceased trading across a whole range of sectors. But the increase in CVAs and administrations bringing the numbers more in line with 2019 and prior years is probably reflective of the continued availability of new money to support businesses which can be restructured and continue trading.

The ‘slow crush’ of persistently high interest rates are pushing businesses of all kinds to the point of failure, say Alex Jay and Tim Symes, partners at law firm Stewarts.

Although business insolvencies are climbing, personal insolvencies dropped last month.

The Insolvency Service reports that there were 9,881 individual insolvencies across England and Wales in October.

That is 6% lower than in October 2022, although an increase on September when 7,280 personal insolvencies were filed.

A chart showing individual insolvencies
A chart showing individual insolvencies Photograph: Insolvency Service

Joanne Wright, managing director at Kroll, says these personal insolvency statistics are “an ongoing conundrum”.

Despite the spike in interest rates and the ongoing cost of living crisis, the overall numbers are declining which is not what anyone would expect to see.”

“The one understandable statistic is the sharp incline in debt relief orders. Borrowers with no assets and debt levels of less than £30,000 seem to be using this procedure instead of Individual Voluntary Arrangements (IVAs). This could be seen as a positive step as there have recently been some questions around how appropriate IVAs are for smaller borrowers.”

Updated

Businesses are being “battered from all sides”, warns Nicky Fisher, President of R3, the UK’s insolvency and restructuring trade body.

Following the rise in insolvencies, Fisher explains:

Costs have increased, demands for wages are incoming and people are spending less as they look to save ahead of the winter and to make sure they have enough left to cover the basics.

If the Christmas trading period doesn’t bring a wave of new income, we could see insolvencies continue to rise in the new year, and at the moment, it’s impossible to predict whether this will be a badly needed boost or the final blow for struggling firms.

Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial, blames the government and the Bank of England for the rise in insolvencies:

The legacy of Sunak won’t be halving inflation, it will be the pain and suffering he and Andrew Bailey have inflicted on British households.

The amount of people and businesses unable to cope with rising levels of debt and higher interest is yet to be seen, but these figures indicate how rapidly things are turning bad.

Rishi Sunak may be able to declare victory in his pledge to halve inflation this year tomorrow, when the latest inflation data is released.

We have confirmation that the eurozone is halfway into recession.

GDP across the single currency region fell by 0.1% in July-September, new data released by statistics body Eurostat shows. That matches the first estimate released at the end of October.

The data confirms that the German economy shrank by 0.1% in July-September, while France grew by 0.1% and Italy stagnated.

If the eurozone shrinks in the current quarter (October-December), then the eurozone would be in a technical recession.

The UK economy, for contrast, didn’t grow in the quarter.

David Kelly, Head of Insolvency at PwC, says smaller companies are bearing the brunt of the rise in insolvencies in England and Wales last month.

“Continuing supply chain pressures, energy costs, inflation and the high cost of debt mean that many corporate balance sheets remain fragile - particularly those of smaller owner-managed companies. These continue to bear most of the pain, with 98% of insolvencies in October being for companies with turnover of less than £1 million.

“Although there was a 58% increase in companies with more than £1 million turnover going into an insolvency process in October 2023 compared with October 2022, the numbers are still relatively low, with less than 50 companies filing for an insolvency process in this turnover range. Engineering, business services, and hospitality and leisure continue to be the sectors facing the most pressure, with 70% of insolvencies coming from these four sectors.

“Looking ahead, unfortunately we expect the number of insolvencies to remain high in the final months of this year, with no sector immune from the prevailing external challenges.”

The jump in insolvencies last month is sparking more calls for Jeremy Hunt to help businesses, in next week’s autumn statement

Nick O’Reilly, director of restructuring and recovery at accountancy firm MHA, says the chancllor should introduce an overhaul to business rates and policies to stem spiralling insolvencies:

“The government must act swiftly to stem the rising tide of insolvencies and stimulate growth. The current plight of hospitality and retail businesses demands urgent government intervention through a comprehensive overhaul of the business rate system.

The government must create a system that is based on turnover rather than property values. A minimum fixed rate that increases based on turnover would mean that retailers and local authorities would both be winners when a business does well and ensure they are not overburdened in downturns.

“HMRC also desperately requires increased funding to streamline its financial debt recovery processes. The existing Time to Pay system is a postcode lottery as to whether a firm will secure an agreement to repay its debts or face a winding up petition. Businesses need a more cohesive approach from HMRC so they have greater certainty when it comes to managing finances.

To stimulate growth, a multifaceted approach is needed. This should include the reduction of red tape on exports, lowering interest rates and implementing a tax stimulus. Businesses yearn for policies that instil hope and foster a conducive environment for sustained growth. It is high time the government implemented measures that resonate with the needs of businesses and propel the economy forward.”

Insolvencies up 18% in October

Newsflash: the number of companies falling into insolvency in England and Wales has jumped again.

There were 2,315 registered company insolvencies in October, which is 18% higher than in October 2022 (when there were 1,954), a worrying sign for the UK economy as it enters the winter.

It’s also an 18% increase on a monthly basis, as there were 1,969 insolvencies in September.

UK companies have been hit by high interest rates, and weak consumer spending as households have been hit rising prices.

The increase in company insolvencies was driven mostly by Creditors’ Voluntary Liquidations (CVLs) in which company directors opt to wind up an insolvent company which has no prospect of recovery.

There were 256 compulsory liquidations, 1,889 creditors’ voluntary liquidations (CVLs), 146 administrations, 23 company voluntary arrangements (CVAs) and one receivership appointment, the Insolvency Service says.

Compulsory liquidations, CVLs, CVAs and administrations were all higher than in October 2022.

A chart showing insolvencies in England and Wales

David Hudson, restructuring advisory partner at business advisory firm FRP, says:

“Inflated input costs and higher interest rates have pushed many firms over the edge in recent weeks. However, this data is the result of pressure built up in businesses over months and years, so the likelihood is that we haven’t seen the true extent of this wave of insolvencies yet.

Hudson adds that management teams will need to keep a close eye on signs of distress in their supply chains.

Rising insolvencies increases the risk of a knock-on effect in supply chains that could, in the worst cases, pull them under too.”

Updated

IEA raises oil growth forecasts

In the energy sector, the International Energy Agency (IEA) has raised its oil demand growth forecasts for this year and next.

In its latest monthly report, the IEA says world oil demand continues to exceed expectations, although demand growth could slow next year.

It says:

In this Report, we have slightly revised up our 2023 growth forecast to 2.4 million barrels per day (mb/d), as US deliveries proved more resilient than indicated by preliminary data and Chinese oil demand in September set another all-time high above 17 mb/d, fuelled by a booming petrochemical sector.

Global oil demand is set to rise to a record annual high of 102.9 mb/d in 2024, the IEA estimates, even though there are signs of weaker growth in major economies.

Demand is expected to fall in the OECD next year.

On the production side, the IEA says world oil supply is “firmly on an upward trajectory”, adding:

World oil supply growth is also exceeding expectations. Fears that the war between Israel and Hamas would escalate into a wider regional conflict, disrupting oil supply flows, have yet to materialise.

But the IEA warns that the oil market could experience more volatility, saying:

With demand growth set to slow, the market could shift into surplus at the start of 2024.

For now, with demand still exceeding available supplies heading into the Northern Hemisphere winter, market balances will remain vulnerable to heightened economic and geopolitical risks – and further volatility ahead.

There’s little in today’s jobs report to encourage the Bank of England to change interest rates, higher or lower, argues Martin Beck, chief economic advisor to the EY ITEM Club.

Beck explains:

The latest labour market release signalled a stable UK jobs market. The jobless rate was unchanged from Q2 to Q3 and while pay growth slowed a little, it was still strong by past standards.

But judging what the data means for monetary policy isn’t clear cut.

On the quantities side, today’s release was again lacking the usual Labour Force Survey (LFS) data. And the Monetary Policy Committee (MPC) has been sceptical about the story told by the official pay series, although the latest numbers are more in line with other measures. But overall, labour demand and pay growth appear to be cooling, albeit only slowly, consistent with interest rate cuts not being on the agenda for a while yet.

NIESR, the economic research institute, predicts that wage growth will remain historically elevated in the final quarter of this year.

Paula Bejarano Carbo, associate economist at NIESR, says:

“Average weekly earnings, excluding bonuses, grew by 7.7 per cent in the third quarter of 2023 and by 7.9 per cent if we include bonuses – though the latter figure is affected by one-off civil service bonus payments.

While both figures remain high relative to their respective historical average growth rates of 3.2 and 3.1 per cent, when we adjust for inflation, today’s figures drop to 1.3 and 1.4 per cent, highlighting the extent to which elevated inflation continues to harm households.

Today’s experimental data suggest that the UK unemployment rate was largely unchanged on the quarter at 4.2 per cent, while vacancies fells by 58,000 in the three months to October; these data indicate that the labour market continues to loosen at a slow pace, leading us to expect that wage growth will remain historically elevated in Q4.”

Updated

Victoria Scholar, head of investment at interactive investor, says there are signs of slack in today’s jobs market figures:

While the headline unemployment rate remains unchanged, there are some signs of slack in the labour market with a fall in job vacancies across 16 out of 18 industry sectors, highlighting the cautiousness among businesses across the economy towards hiring.

Plus the UK employment rate decreased by 0.1 percentage points during the quarter to 75.7%.

However wage growth remains very strong, with real pay rising at the fastest rate in two years partly driven by the fall in inflation.

Resolution: Outlook for jobs is murky

Nye Cominetti, principal economist at the Resolution Foundation, has dug into today’s data and repoorts that “pay growth looks to be cooling rapidly in the private sector”.

Cominetti adds:

A rapid cooling will reassure the Bank of England that rising rates are having their desired affected, though for workers it could mean that the recent period of rising real wages is ending soon.

“Data limitations mean that the outlook for jobs murky. While vacancies keep falling, there’s no sign yet of a big rise in unemployment that some people fear.”

A chart showing pay growth

Updated

Wage figure are 'good news' for Bank of England.

The Bank of England will be encouraged that pay growth slowed in the last quarter, reports James Smith, developed markets economist at ING.

It might encourage the BoE to conclude that it has now raised interest rates high enough to bring inflation down to target.

Smith says:

The latest UK wage figures are generally good news from the perspective of the Bank of England. Private sector regular pay growth, which strips out volatile bonus payments, inched lower to 7.8% from 8.1% on a year-on-year basis. This is one of the three key metrics the Bank has said it’s looking at as a guide for policy.

Admittedly, that’s still far too high and inconsistent with a 2% inflation target. But equally, the news is better if you look at pay in level terms. Private sector pay was unchanged in the most recent month, as the chart below shows.

That means if you compare the most recent three-month period to the three months prior, the rate of growth has slowed a lot. These figures do bounce around, but it looks like a signal that momentum is slowing.

A chart showing pay growth

TUC General Secretary Paul Nowak says the UK economy is in the “relegation zone”, adding;

“Unemployment remains 225,000 higher than a year ago with vacancies continuing to decline.

Working people are far worse off than they were when the Conservatives took office.

“If pay packets had been growing at pre-crisis levels, workers would be on average nearly £15,000 better off. And across parts of the economy, real wages are still shrinking.

“The Conservatives’ economic mismanagement is costing people their jobs and livelihoods. It’s time for change.”

IoD concerned by long-term sickness

The Institute of Directors is concerned that the rise in long-term sickness is making it harder for firms to recruit staff.

Alexandra Hall-Chen, Principal Policy Advisor for Employment at the IoD, explains:

“Today’s data shows that while the number of vacancies has fallen slightly, the labour market remains very tight and businesses are still struggling to hire the people they need.

“Our own data shows that business leaders continue to cite skills and labour shortages as having a negative impact on their organisation, second only to more general concerns about the UK economy.

“Historically high levels of economic inactivity due to long-term sickness remain a cause for concern. The government should use next week’s Autumn Statement to support businesses to invest more in occupational health provision by expanding the range of occupational health services covered by Benefit in Kind exemptions.”

Liz Kendall MP, Labour’s Shadow Work and Pensions Secretary, says today’s labour market figures show “the Tories’ failure on the economy”.

“Our employment rate still hasn’t got back to pre pandemic levels, unlike every other G7 country, and a record number of people remain locked out of work due to long term sickness. This is terrible for individuals and their families, especially during a cost of living crisis, and for taxpayers too as the benefits bill continues to soar.

“Labour’s plan to get Britain working will tackle the root causes of economic inactivity by driving down NHS waiting lists, reforming social security, making work pay and supporting people into good jobs across every part of the country.”

Public sector wages are growing at the fastest rate in at last 22 years, the ONS reports.

Today’s jobs report says:

Annual average regular pay growth for the public sector was 7.3% in July to September 2023 and is the highest regular annual growth rate since comparable records began in 2001; for the private sector this was 7.8% and among the largest annual growth rates seen outside of the coronavirus (COVID-19) pandemic period.

Including bonuses, public sector pay rose by 8.6%.

Updated

Jeremy Hunt (still the chancellor after yesterday’s reshuffle) says he’s heartened that real wages are growing.

He also drops a hint that next week’s autumn statement will include new measures to target employment:

“It’s heartening to see inflation falling and real wages growing, keeping more money in people’s pockets.

“Building on the labour market reforms in Spring, the Autumn Statement will set out my plans to get people back into work and deliver growth for the UK.”

Company payrolls keep rising

Company payrolls continued to grow last quarter.

The number of payrolled employees in the UK is estimated to have increased by 33,000 in October, to 30.2 million.

September’s figures have been revised too – to show an increase of 32,000, not the decrease of 11,000 first reported.

Secretary of State for Work and Pensions, Mel Stride MP says:

“We are leaving no stone unturned to help people into work, with a record number of employees on payrolls - up nearly 400,000 in the last year alone with 3.9 million more people in work than in 2010.

“With our ambitious welfare reforms, including the expansion of free childcare and extra support for people with health conditions, we are taking long term decisions that will grow the economy and change lives for the better.”

Introduction: Vacancies drop again, but real wage growth hits two-year high

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Vacancies at UK firms are continuing to fall as the economy struggles to grow, while real pay is rising at the fastest rate in two years.

That’s two key points from the latest survey of the UK labour market, just released by the Office for National Statistics, which shows little change in unemployment, employment, or economic activity in the last three months.

The ONS reports that vacancies fell for the 16th time in a row, dropping by 58,000 in August-October compared with May-July, as companies cut back on hiring.

Vacancy levels fell in 16 of the 18 industry sectors, led by professional, scientific, and technical activities.

A chart showing UK vacancies

But workers are continuing to see their wage packets rise faster than inflation, thanks to strong pay growth and the drop in inflationary pressures this summer.

The ONS reports that pay growth slowed a little, with regular pay (excluding bonuses) growing by 7.7% in July to September 2023 (down from 7.9% last month).

Total pay rose by 7.9% (down from 8.2%), bolstered by one-off bonus payments to civil service staff this summer.

Adjusted for CPI infation, that means that total pay rose by 1.1% on the year and regular pay rose by 1.0% on the year, the fastest since autumn 2021.

The ONS has been having problems producing its usual labour market report, due to low response rates. So instead it has produced an alternative set of estimates, which show:

  • the UK employment rate decreased by 0.1 percentage points on the quarter to 75.7%

  • the UK unemployment rate was largely unchanged on the quarter at 4.2%

  • the UK economic inactivity rate was largely unchanged on the quarter at 20.9%.

Darren Morgan, ONS director of economic statistics, said:

“Our labour market figures show a largely unchanged picture, with the proportions of people who are employed, unemployed or who are neither working nor looking for a job all little changed on the previous quarter.

“The number of job vacancies fell for the 16th straight month. Nevertheless, vacancies still remain well above their pre-pandemic levels.

“With inflation easing in the latest quarter, real pay is now growing at its fastest rate for two years.”

Reaction to follow….

We also get the latest UK insolvency figures this morning, an update on eurozone growth, and then US inflation data this afternoon.

The agenda

  • 9am GMT: IEA oil market report

  • 9.30am GMT: US monthly insolvency statistics for October

  • 10am GMT: Eurozone GDP report (second estimate)

  • 10am GMT: ZEW index of eurozone economic sentiment

  • 1.30pm GMT: US inflation report for October

Updated

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