UK wage growth at new decade high as employers hire in the face of Brexit

British workers' pay grew at its joint fastest pace in over a decade as employers extended their hiring spree, adding to signs that uncertainty about Brexit is prompting firms to take on workers rather than commit to longer-term investments.
16 APR 2019   4.46pm

FILE PHOTO: City workers head to work during the morning rush hour in Southwark in central London April 16, 2014.REUTERS/Toby Melville

Contrasting with other sluggish readings of Britain’s economy, total earnings, including bonuses, rose by an annual 3.5 percent in the three months to February, official data showed, in line with a Reuters poll of economists.

That was the joint highest rate since mid-2008 although in the month of February on its own the pace of wage growth slowed.

Britain’s labor market has defied the approach of Brexit, helping households whose spending drives the economy. Last week, Britain’s exit from the EU was delayed until October.

Employment grew by 179,000 in the three months to February, in line with the Reuters poll forecast, helping to keep the unemployment rate at 3.9 percent, its lowest since early 1975, the Office for National Statistics said.

However, the jobs surge could reflect nervousness among employers about Brexit and risks aggravating Britain’s long-standing productivity problem, the Achilles heel of the world’s fifth-biggest economy.

Workers can be hired and then fired if the economy takes a hit, whereas investment in technology and new machinery — which helps the economy over the long term — fell throughout 2018.

PRODUCTIVITY PROBLEM

“The elongated period of uncertainty has kept businesses in a hiring cycle,” Tej Parikh, an economist at the Institute of Directors, an employers group, said.

“Without a pick-up in investment, low productivity will also keep wages from growing further, particularly when considering the higher regulatory costs businesses are facing this tax year.”

Data earlier this month showed output-per-hour rose by only 0.5 percent in 2018, well below the annual average of 2 percent before the global financial crisis.

Accountancy firm Deloitte said on Monday that large British-based businesses were increasingly focused on cashflow as they worried about the long-term economic hit from Brexit.

The ONS said the increase in jobs over the past year was all coming from full-time workers, both employees and self-employed.

Average weekly earnings, excluding bonuses, rose by an annual 3.4 percent, the ONS said, in line with the Reuters poll and down from 3.5 percent in the three months to January.

It was the first fall in that measure of pay growth since the middle of last year.

The strength of the labor market is pushing up wages more quickly than the Bank of England has forecast, leading some economists to think it might move quickly to raise interest rates once the Brexit uncertainty lifts.

The BoE forecast in February that wage growth would slow to 3.0 percent by the end of 2019 with the overall economy likely to grow at its slowest pace in a decade.

https://uk.reuters.com/article/us-britain-unemployment/uk-wage-growth-at-new-decade-high-as-employers-hire-in-the-face-of-brexit

Guy Verhofstadt: ‘The biggest waste of EU resources is Nigel Farage’s salary’

Why would anyone reelect him to this role?’ wonders liberal MEP.

By PAUL DALLISON

4/29/19, 5:30 PM CET

 

Updated 4/29/19, 5:33 PM CET

Brexit Party leader Nigel Farage | Leon Neal/Getty Images

European Parliament liberal group leader Guy Verhofstadt had a pop at his longtime rival Nigel Farage on Monday, saying the Brit's MEP salary was "the biggest waste of EU resources."

Verhofstadt, a former prime minister of Belgium, said on Twitter: "Nigel Farage has been an elected MEP since 1999, but now says he comes out of 'semi–retirement.' As I already warned in 2012, the biggest waste of EU resources is Nigel Farage's salary. Why would anyone reelect him to this role?"

Verhofstadt attached a video from the Parliament chamber from 2012 in which he said: "You know, colleagues, what I think is the biggest waste of money in the European Union of today is the salary we all pay to Mr. Farage."

He added, to applause from MEPs: "Let's be honest about it. You are a member of the fisheries committee, for example, and you're never there. Never. In 2011, no attendance."

"You are cheating your own citizens here. All the time."

Verhofstadt may have thought he was getting rid of Farage thanks to Brexit, but with the U.K. all but certain to be taking part in May's EU election, that appears not to be the case.

Farage launched his new Brexit Party earlier in April, saying: "I do believe that we can win these European elections and that we can again start to put the fear of God into our members of parliament in Westminster — they deserve nothing less than that after the way they have treated us."

According to POLITICO's election polling, the Brexit Party is on course to win 13 seats, coming in second in Britain behind Labour.

https://www.politico.eu/article/guy-verhofstadt-the-biggest-waste-of-eu-resources-is-nigel-farage-salary/

How has Brexit vote affected the UK economy? April verdict (Guardian)

Each month we look at key indicators to see what effect the Brexit process has on growth, prosperity and trade

MON 29 Apr 2019  12.49 BST

 Britain’s shoppers appeared to shrug off Brexit turmoil and kept on spending in high street stores and online. Photograph: Henry Nicholls/Reuters

Sterling tumbles on Brexit concerns

Sterling markets

Euro v £Dollar v £

Source: Thomson Reuters

The pound has been on a wild ride over the past month, as the political turmoil over Brexit developed into a full-blown national crisis. Sterling surged to a high-point for the year of more than $1.33 against the US dollar in March amid speculation a deal could be agreed, but sank back down below $1.30 as the chances of Theresa May pushing her Brexit deal through parliament evaporated. The pound has dropped by 2% against the dollar and 1.5% against the euro. Sterling remains worth about 13% less than before the EU referendum in June 2016.

Stock markets surge to six-month high

FTSE100 index

Source: Thomson Reuters

FTSE250 index

Source: Thomson Reuters

The FTSE 100 burst through the 7,500-point mark this week for the first time since October, helped by central banks around the world leaving interest rates on hold and robust economic data from some of the globe’s biggest economies. The weaker pound has also helped Britain’s biggest companies, which make the bulk of their profits from abroad in foreign currencies. The International Monetary Fund has, however, warned that the majority of countries worldwide can expect slower growth in 2019, in a signal that the recent gains on the financial markets could be short-lived. The FTSE 100 has risen by 4% on the month.

Better than forecast

Inflation unexpectedly holds steady

Consumer prices index, % change

Source: ONS

UK households received some better news last month after the consumer price index (CPI) measure of inflation unexpectedly remained at 1.9%, unchanged from February, despite expectations for a slight increase in the cost of living. The rising cost of petrol for consumers was offset by falling food prices and computer game prices rising more slowly than a year ago. Nonetheless, a rising oil price on the global markets will add to pressure facing consumers in future, while a sudden drop in the pound in the event of a no-deal Brexit would cause inflation to rise further.

Worse than forecast

Trade deficit widens

Trade balance, £bn, goods and services, seasonally adjusted

Source: ONS

The stockpiling rush to avoid Brexit disruption was evident in latest trade figures, as the UK recorded a record monthly goods trade deficit for the second month in a row in February, as British firms bought more merchandise from abroad than was sold overseas. The goods trade deficit was £14.1bn in February, almost £2bn more than economists’ forecasts.

Worse than forecast

Business activity stalls as Brexit nears

Activity levels

All sector PMI, output index. Values above 50 indicate growth, below 50, contraction

Source: IHS Markit

The latest surveys of business activity, used as an early warning indicator by the Bank of England, showed the economy stalling in the first quarter and at risk of sliding into a downturn, after the weakest performance in the private sector in almost seven years. The surveys have proven gloomier than official figures over the past few months, although still paint a worrying picture for the path ahead, as British firms put spending decisions on hold. According to the survey from IHS Markit and the Chartered Institute of Procurement and Supply, both the construction and service sectors plunged into reverse in March, while manufacturing was only able to expand because of emergency stockpiling in the run-up to Brexit.

Meets forecast

Wages increase as unemployment remains steady

Unemployment

Seasonally adjusted rate for age 16 and over, three months ending in month shown, %

Source: ONS

Wages

Average earnings annual growth, three months ending in month shown, %

Source: ONS

Pay growth in Britain continued to rise at the fastest rate in more than a decade in February, as companies kept hiring despite growing fears over Brexit. In a sign that British workers are starting to repair the damage from a decade of lost wage growth since the financial crisis, average weekly earnings rose by 3.5% on the year, meeting the forecasts of City economists. Companies hired an additional 179,000 workers to keep employment at a record high and unemployment at 3.9%, the lowest since the mid-1970s. However, economists warned that businesses have delayed investments and opted to hire workers instead amid the uncertainty over Brexit. Real wages are also still below the peak recorded before the financial crisis.

Better than forecast

Shoppers shrug off Brexit fears

Retail sales

Month on month change, %, seasonally adjusted

Source: ONS

Britain’s consumers appeared to have ignored the turmoil at Westminster last month and kept on spending in high street stores and online. Despite fears that sales would fall as Brexit neared, figures from the ONS showed that retail sales rose 1.1% in March on the month. Economists said last month’s mild weather helped to increase sales, as all categories of retail spending apart from department stores and household goods rose in the three months to March.

Worse than forecast

Hammond misses budget deficit target

Government borrowing

2015/162016/172017/182018/19

Philip Hammond missed his annual target for bringing down the budget deficit in the latest financial year, despite borrowing dropping to the lowest level since 2002 during 2018-2019. Public sector net borrowing was £1.9bn more than the £22.8bn forecast by the Office for Budget Responsibility, the government’s tax and spending watchdog, as spending rose by more than expected in March. Britain ran a budget deficit of £1.7bn in the month of March, above the £400m forecast made by City economists. However, the latest snapshot showed a steady improvement for the public finances since a peak for borrowing after the financial crisis of £153.1bn, recorded in 2010.

Better than forecast

House price barometer improves

RICS house price indicator

Proportion of respondents reporting a rise in prices minus those reporting a fall, %

Source: RICS

The slump in the British housing market may have bottomed out in March, after a closely watched survey of sales activity staged a modest improvement. The Royal Institution of Chartered Surveyors’ monthly house price balance – measuring the difference between the number of estate agents and property surveyors anticipating increases and those expecting decreases – edged up to -24% in March from -27% in February. However, prices are still forecast to fall in the coming months, as the lack of clarity over Brexit weighs on the property market.

And another thing we’ve learned this month … productivity growth is slowing as Brexit bites

Economists regard productivity gains as the most important driver of rising living standards over the long term. Amid fears that Brexit could sap the strength of the UK economy over the next decade, the measure of growth in economic output per hour of work slumped in 2018, according to the latest figures, as the UK managed only a quarter of the rate of productivity growth seen before the financial crisis. Productivity grew by 0.5% last year compared with 2017, well below the 2% a year average recorded before the 2008 crash. Productivity gains are linked to investments in the economy, but Brexit has led corporate spending to fall dramatically. Economists fear that lower levels of business investment will mean weaker levels of productivity growth in future, paving the way for lower GDP growth and sluggish pay rises for workers.

https://www.theguardian.com/business/2019/apr/29/how-has-brexit-vote-affected-the-uk-economy-april-verdict