UK unemployment rate drops but wage growth slows; Germany’s economic outlook ‘breaking down’ – business live | Business

Here’s a chart showing the drop in investor confidence in Germany to a two-year low:

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In the foreign exchange markets, the rouble is weakening again as Russia is rocked by Ukraine’s incursion in its territory.

The rouble is down 2.2% today at 93 roubles to the US dollar. It has now lost around 8.6% since Ukraine began its attack.

Ukraine’s top commander says his forces have captured 1,000 sq km (386 square miles) of Russia’s bordering Kursk region; Russian President, Vladimir Putin, has vowed a “worthy response” to the attack…

Economic outlook for Germany is “breaking down”

Today’s wage data shows some cooling, as expected, in the labour market, reports Daniel Mahoney, UK economist at Handelsbanken.

Mahoney says there are no major surprises in the UK earnings figures:

Annualised earnings for the three months to June registered at 5.4% excluding bonuses, matching market expectations and coming in slightly lower than the previous month’s figure of 5.8% (revised). Total annualised pay awards came in at a much more modest 4.5%, but note that this figure has been skewed by the fact that large one-off bonuses were paid to NHS staff in June 2023.

That said, the trend in nominal wage growth does seem to be showing a cooling trend: annual average regular private sector pay was 5.2% in the latest print, the lowest level since March to May 2022. Real wage growth continues to be positive, with real regular pay rising by 2.4%.

UK mortgage rates drop to six-month low

What will today’s UK jobs data mean for interest rates?

Rob Morgan, chief investment analyst at wealth manager Charles Stanley, says the Bank of England won’t be in a rush to lower rates again, following the cut earlier this month, after seeing basic pay rose by 5.4% in April-June.

Morgan says:

Today’s job numbers have all but ended hopes of a further interest rate cut for a few months. Wage inflation is a key number to help the BoE assess how quickly it should cut interest rates as it’s a significant component of services sector prices.

While goods inflation has been largely contained for the time being, services inflation continues to run hot, driven by higher wages. An employment market taking a long time to balance strengthens the case of the MPC hawks who want to wait for more evidence before they reduce rates any further.

ING Developed Markets Economist, James Smith, argues that the data will “do little” to shift the debate among BoE policymakers.

Smith explains:

In the short term, we think the stickiness in wage growth will keep the Bank moving cautiously on rate cuts.

But assuming there is further progress on both that and services inflation over the next few months, we think the Bank will accelerate the pace of cuts beyond November. We expect Bank Rate to fall to 3.25% by this time next year.”

This morning, the money markets indicate there’s a 64.5% chance that the Bank will leave interest rates on hold in September, and a 35.5% chance of a cut.

Today’s jobs report shows an extra 350,000 people became ‘economically inactive’ over the last year.

That means they were neither working (ie, in employment) or out of work and looking for a job (unemployed).

On a seasonally-unadjusted basis, the ONS reports there were 9.516m adults, aged 16-64, who were economically inactive.

Of this total, 2.659m were students, 1.741m were looking after family, 228,000 were temporarily sick and 2.8m were long-term sick.

There were 27,000 ‘discouraged workers’, who were not looking for work because they believed none was available, and 1.069m were retired.

Dr Helen Gray, chief economist of Learning and Work Institute, says:

Compared with the period immediately prior to the pandemic (December 2019 to February 2020), 859,000 more people aged 16 to 64 were economically inactive in the most recent quarter. 1.8 million people who are economically inactive want a job.

In April to June 2024, only just over half (53.0%) of all people of working age with a disability were employed, compared with 81.6% of those without a disability. Yet only 1-in-10 out-of-work people with a disability get help to find work each year.

To achieve the government’s ambition of an 80% employment rate, it will be necessary to extend employment support to a greater proportion of those who want to work.

Vacancies across the UK economy have now fallen for more than two years running.

Job openings surged in 2021 and early 2022, as the economy reopened after Covid-19 restrictions, peaking at over 1.3m in March-May 2022 as companies scrambled to find staff.

Today, the ONS reports that vacancy numbers decreased in May to July 2024 for the 25th time in a row, to to 884,000. That’s still above the pre-Covid levels, though.

UK real wage growth is ‘running out of steam’, fears Hannah Slaughter, senior economist at the Resolution Foundation:

“Workers’ pay packets continue to grow coming out of the cost-of-living crisis, but the recent strong real wage growth is running out of steam as productivity stagnates and the jobs market cools.

Slaughter also warns that problems collecting reliable data make it hard to see the true picture of the labour market:

“Official data is likely to be under-estimating the real level of employment in the UK, which could be close to a record high. This data failure is blind-siding monetary policy makers as they weigh up what to do on interest rates.”