Graeme Wearden 

BoE policymaker says stimulus could end early; US jobless claims at pandemic low– as it happened

Rolling coverage of the latest economic and financial news
  
  

Bank of England MPC member Michael Saunders.
Bank of England MPC member Michael Saunders. Photograph: Graeme Robertson/The Guardian

Closing post

And finally... European stock markets have had a rough day, as inflation worries and pandemic angst hit shares again.

In London, the FTSE 100 index is down 83 points or 1.1% in late trading at 7008 points, while the pan-European Stoxx 600 has lost 0.95%.

Retailers, travel stocks, housebuilders and oil companies are all in the fallers, as traders ponder when central bankers will press on and slow their stimulus packages, to rein in inflation.

Ed Monk, associate director, Personal Investing at Fidelity International says Michael Saunders’ hint about ending stimulus measures soon has dampened the markets’ mood.

“Michael Saunders’ speech acknowledges that inflationary pressures have surprised to the upside in the past few months. Any change in Bank of England policy still requires a majority of the Monetary Policy Committee to agree, but Saunders lays out the argument now building among the Bank’s rate-setters that some stimulus may need to be withdrawn in the months ahead.

“This should be unsurprising, but markets are likely to take the news badly. The most recent moves in monetary policy have been to loosen and were made last year in the face of a Covid-induced economic shock when we did not know when or if vaccines could lead us out of the pandemic. We can now see a path to normality so the reversal of some stimulus is logical.

“It’s clear that the Bank’s willingness to look through current rising inflation was based on a belief that slack in the labour market would keep wages lower, preventing a broad-based rise in demand, but there are signs that new hires are joining on higher salaries, with fewer workers relying on furlough than was expected at this stage.

“Investors on both sides of the Atlantic have come to fear any tightening of stimulus, but we should bear in mind that such moves would only come in response to healthy growth in economies and higher salaries for workers, which ultimately improves the outlook for company earnings.”

Ongoing worries about rising Covid-19 cases continue to hit hospitality firms - cinema chain Cineworld has lost another 8% today, while airline group IAG have dropped 3%.

And retailers are also weaker, with ASOS now down 17% after warning that sales slowed partly because Covid-19 restrictions deterred young people from buying new summer clothes for holidays and festivals.

Here are today’s main stories:

Goodnight. GW

The UK’s financial regulator is planning to increase its presence outside the capital by basing staff in Cardiff, Belfast and Leeds for the first time, as it follows the Bank of England and the Treasury’s attempts to become less London-centric.

The Financial Conduct Authority, which also expects to double its headcount in Edinburgh to 200 staff over the next two years, said the moves were meant to reflect the fact that it supervises companies across the country, not only in the City of London.

“We are a regulator for the whole of the UK,” the FCA said as it released its latest business plan.

“Alongside our ongoing strong commitment to presences in London and Edinburgh, we are developing a national location strategy.”

British government bonds tumbled on Thursday after Bank of England policymaker Michael Saunders said the central bank might call time early on its asset purchase programme, pushing two-year yields to their highest since April 2020, Reuters reports.

Rate-sensitive two-year gilt yields rose almost 8 basis points on the day to 0.161%, pushing past a previous high set in late June to their highest since April 2020, not long after the BoE restarted purchases of government bonds.

Benchmark 10-year gilt yields rose 4 basis points on the day to 0.67% following the speech by Monetary Policy Committee member Saunders, who said inflation pressures risked proving more durable than the BoE had initially hoped.

Wall Street has opened lower, despite the encouraging drop in jobless claims.

The S&P 500 index has dipped by 0.25% to 4,367 points, down 6 points, while the Dow is flat and the Nasdaq composite is down 0.2%.

Energy stocks are leading the fallers, following the drop in crude prices, with health and tech lower too.

But industrial stocks, utilities and miners are higher.

Updated

Back in the UK, Tesco and John Lewis have joined Waterstones and Sainsbury’s in recommending that customers and staff continue to wear face masks in their shops in England beyond 19 July despite an easing of mandatory safety measures relating to Covid-19.

A Tesco spokesperson said it was asking customers and staff “to be on the safe side” and “encouraging” them to wear masks. The company added that other measures such as limiting customer numbers in stores and separate entrances and exits would also continue.

In Scotland and Wales, legislation still requires shoppers and staff to wear masks, unless exempt.

A Tesco spokesperson said:

“Since the start of the pandemic, we have focused on ensuring everyone can get the food they need in a safe environment. Having listened to our customers and colleagues, we will continue to have safety measures in place in our stores; these include limiting the number of people in store at any time, protective screens at every checkout, hand sanitiser stations and regular cleaning.”

John Lewis said that while it recommended wearing a face covering, “the decision over whether to do so or not, when in our shops [in England], will be for each individual to take, based on their own judgment”.

The company said it would be retaining screens in front of tills, hand-sanitising stations and store-cleaning measures put in place since the beginning of the pandemic...

Here’s the full story:

The global shortage of semiconductors continues to hit car production in the US, new data shows.

US industrial production growth slowed in June, up 0.4% after a 0.7% rise in May, the Federal Reserve reports.

The narrower measure of manufacturing output fell 0.1% in June, as “an ongoing shortage of semiconductors” contributed to a 6.6% decrease in the production of motor vehicles and parts, the survey shows.

For the second quarter as a whole, total industrial production rose at an annual rate of 5.5% . Manufacturing output increased at an annual rate of 3.7% despite a drop of 22.5% for motor vehicles and parts.

It’s a widespread problem - the latest UK GDP report showed a slump in car output in Britain in May, caused by chip shortages.

The global shortage in semiconductors, the microchips that are an essential component in every electronic device in the world, started as a temporary delay in supplies as chip factories shut down when the coronavirus pandemic first hit.

However, while factory production has returned to normal, the shortage has become a global crisis, with a new surge in demand leading to companies fighting to secure the limited supplies coming to the market.

Apple, the world’s biggest buyer of semiconductors – spending $58bn (£41.7bn) annually – was forced to delay the launch of the iPhone 12 by two months last year because of the shortage. Sony has warned it may not hit sales targets for the new PS5 console this year because of chip supply problems, and Samsung, the second biggest producer and consumer of chips in the world, said it might have to postpone the relaunch of its high-end smartphone.

However, the hardest hit sector has been the global automotive industry. Car manufacturers are relative newcomers to the semiconductor industry, as investment in tech-heavy electric vehicles increases, and have found themselves at the back of the supply queue. The biggest automotive players, Toyota and Volkswagen, spend about $4bn annually on chips, making them relative minnows in the supply chain.

Ford has been forced to cancel shifts at two car plants and said profits could be hit by up to $2.5bn this year, Nissan is idling output at some plants in Mexico and the US, and General Motors has warned of a $2bn profit hit.

The battle for chip supplies has also sparked governmental concerns. Earlier this week, Boris Johnson said the UK government would step in to review the purchase of the UK’s largest producer of semiconductors by a Chinese-owned manufacturer, under the new National Security and Investment Act 2021 designed to protect key infrastructure businesses from foreign takeovers.

The shortage is forecast to last until 2023 because new chip factories are highly complex to build and take up to two years to become operational.
Mark Sweney

Updated

Factory activity in New York state has jumped at a record pace, according to the latest Empire State manufacturing survey.

Manufacturers reported that new orders and shipments surged in July, with employment also accelerating...although price pressures remained high too....

However, a similar survey from Philadelphia shows a slowdown in manufacturing growth.

The Philadelphia Federal Reserve Bank’s business activity index fell to 21.9 from 30.7 in June, signaling the lowest growth since December.

US jobless claims hit pandemic low

The number of Americans filing new claims for jobless support has fallen to its lowest since the pandemic began.

There were 360,000 ‘initial claims’ for unemployment insurance last week, a sharp drop on the (upwardly revised) 386,000 jobless claims made in the previous seven days [these are seasonally adjusted].

This is the lowest level for initial claims since March 14, 2020, just before the pandemic hit the US economy, sending unemployment surging.

This latest fall suggests that US firms are holding onto workers, amid many reports of labor shortages from companies struggling to find qualified candidates.

In addition, there were another 96,362 initial claims for Pandemic Unemployment Assistance from self-employed workers and freelancers who don’t qualify for initial claims.

Claims are still above pre-crisis levels (they were 256,000 in mid-March 2020), but the gap does continue to narrow as the US economy continues to recover from the economic shock.

The number of continuing claims, which run a week behind the headline number, also fell sharply, down 126,000 to 3.24 million.

That’s also a pandemic low -- but could be driven by people exhausting their benefits, rather than finding jobs.

Updated

Revolut becomes UK’s biggest fintech firm with £24bn valuation

The banking and payments app Revolut has become the most valuable British fintech firm on record after a fresh funding round pushed its valuation to $33bn.

The company, founded by the former Lehman Brothers trader Nik Storonsky in 2015, announced on Thursday that it had raised $800m (£579m) from new investors Tiger Global Management and the major Japanese investment group SoftBank, which now hold a near 5% stake in the business.

It means the London-headquartered company is worth $33bn (£24bn), which is six times higher than last year, when it was valued at $5.5bn.

The news comes almost a month after Revolut revealed that its losses almost doubled last year to £207m despite cashing in on the cryptocurrency boom.

Full story: Bank of England warns it could step in to curb rising inflation

The Bank of England may need to step in with early action to deal with rising inflation if price pressures persist, one of Threadneedle Street’s policymakers has said.

Michael Saunders, one of eight members of the Bank’s monetary policy committee, said on current trends it might become appropriate “fairly soon” to rein in some of the stimulus provided to support the economy since the start of the pandemic.

In a sign of growing concern at the Bank about rising inflation, Saunders became the second MPC member within 24 hours to say he was thinking about voting to tighten policy.

Dave Ramsden, one of the Bank’s deputy governors, said on Wednesday he could see inflation – currently 2.5% – rising to 4% for a period later this year and that the conditions for tougher action could be met sooner than he had previously anticipated...

Saunders’ speech marks “a change of tune”, and signals that the Bank of England could end its net asset purchases as soon as next month instead of in December, says Kallum Pickering of Berenberg Bank.

Pickering also suggests that UK interest rates could rise earlier than in August 2022:

Of course, Saunders’ view may not be widely shared among the other members of the policy committee. However, as central banks often use such speeches to fine tune guidance and prepare markets for a policy change, the speech suggests that the BoE will at least discuss at their next meeting on 5 August whether to end net asset purchases early instead of in December.

In our view, given recent upside surprises to inflation, building pressure in the labour market and the outlook for continued strong growth even after the economy reaches its pre-pandemic level of output, ending the stimulus early would be the correct course of action.

The hawkish tilt by Saunders also suggests that the risks to our call for a first rate hike in August 2022 are skewed towards an even earlier hike.

The yield, or interest rate, on UK government bonds rose after Michael Saunders’ comments - as traders anticipated the prospect of the UK’s QE scheme ending early.

The pound also jumped, suggesting traders anticipated a tightening of policy, although it’s now dipped back to $1.386, where it started the day.

Michael Saunders’ suggestion that QE could be curtailed soon comes a day after Bank of England deputy governor Dave Ramsden said the BoE might start to think about reversing its huge monetary stimulus sooner then expected.

Bloomberg says there is “a change in tone” among members of the rate-setting Monetary Policy Committee:

That suggests the panel will debate an early end to this year’s £150bn ($208bn) bond purchase program, a move that would put the BOE in the vanguard of global central banks in withdrawing stimulus.

“This is a notable shift,” said Jordan Rochester, a currency strategist at Nomura International Plc. “We’d label Saunders an activist more willing to shift his view in light of the prevailing data rather than being stuck in his ways.”

Updated

Saunders: BoE may need to end QE stimulus early

The Bank of England may need to stop its bond-buying stimulus programme earlier than planned, due to the risk of rising inflation, according to policymaker Michael Saunders.

In a speech this morning, Saunders says that activity appears to have recovered “a bit more than expected” back in May, when the Bank drew up its latest economic forecasts.

And in a clear signal that the central bank could decide to stop its current quantitative easing programme of government bond purchases early, he says:

In my view, if activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly (and these conditions are important), then it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis.

Options would include “curtailing the current asset purchase program”, and ending it in the next month or two, Saunders says, “and/or further monetary policy action next year”.

Otherwise, he warns, there’s a risk that consumer price inflation will remain above the BoE’s 2% target in two or three years time.

In the speech, Saunders (an external member of the Monetary Policy Committee) says:

Activity appears to have recovered a bit more than expected. And, even relative to this improving trend, there have been large upside surprises in prices and indicators of labour market tightness.

He points to surveys showing imbalances between strong labour demand and low staff availability, with marked increases in pay for new hires.

He also cited the ‘strong gains’ on input and output prices for manufacturing firms (input prices have jumped over 9% in the last year), and rising producer price inflation among service sector firms.

Plus, yesterday we saw UK consumer price inflation jump to 2.5% in June, a near three-year high.

Saunders also predicts inflation will rise further from the Bank’s target in the coming months, saying:

At present, it seems likely that CPI inflation will exceed 3% year-on-year late this year.

Saunders argues that some, but perhaps not all, of the recent price pressures and labour market tightness will be temporary. So, the Bank shouldn’t “totally look through” the recent broad rise in global costs, when setting monetary policy:

A modestly tighter stance...would help ensure that inflation risks 2-3 years ahead are balanced around the 2% target, rather than tilted to the upside (which I suspect is the case with the current policy stance).

And it should help ensure that the prospective further rise in inflation above target later this year does not feed through to a damaging rise in medium-term inflation expectations. It would still leave in place considerable stimulus and hence probably not derail the welcome recovery in the economy: it would be more akin to easing off the accelerator rather than applying the brakes.

Saunders adds that:

So for me, the question of whether to curtail our current asset purchase program early will be under consideration at our forthcoming meetings.

The Bank is currently buying up to £875bn of UK government bonds under its QE scheme, having expanded it by £150bn last November, although it hasn’t yet bought the full £150bn yet.

Saunders also adds that if Bank Rate does rise in the next year or so, it is likely that any rise would be “relatively limited”.

Here are the key points from the speech:

  • Activity seems to have recovered a bit faster than the central forecast in the May MPR, and risks lie on the side that the output gap will close earlier than previously expected.

  • Some of the recent signs of labour market tightness probably reflect temporary frictions associated with the reopening of the economy, Covid-related uncertainty and furlough. Labour market slack is shrinking but probably not yet used up.

  • Price pressures in global manufactured goods reflect, at least in part, strong global demand for goods, including consumer goods, ICT, and plant and machinery investment. These price pressures may well have some persistent effects on UK CPI inflation, partly because of lags in the pass through to consumer prices but also because the underlying strength in demand and prices for manufactured goods may prove persistent.

  • Even once effects from energy prices fade, the closing output gap and possibility of some persistent effects from global cost pressures point to risks that, with the current policy stance, CPI inflation will remain above the 2% target 2-3 years ahead.

  • In my view, if activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly (and these conditions are important), then it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis. In this case, options might include curtailing the current asset purchase program – ending it in the next month or two and before the full £150bn has been purchased – and/or further monetary policy action next year.

Updated

The number of UK workers on furlough has also dropped again, the ONS says:

The proportion of businesses’ workforce reported to be on full or partial furlough leave fell to 5% in late June 2021 (provisional range of 4% to 6%) as a result of coronavirus (COVID-19) restrictions being relaxed across the UK; and the proportion of the workforce reported to be on partial furlough is now higher than on full furlough.

That’s down from around 6% in early June.

Today’s estimate suggests that between 1.1m and 1.6m people were on either full or partial furlough leave around the end of last month.

Consumer spending on credit and debit cards in the UK has fallen month-on-month for the first time this year.

The latest real-time indicators of economic activity, from the ONS, show that credit and debit card spending dropped 4% in June with May 2021. That takes it down to 95% of its February 2020 average level.

The ONS also reported a 4% dip in online job adverts on July 9 compared with the previous week, and a 4% decline in motor vehicle traffic on Monday 12 July.

Airports were busier, though, with the seven-day average number of daily flights increasing by 9% last week to 2,307 flights - that’s still around a third of pre-pandemic levels.

Asos sales rise but CEO warns of more short-term Covid volatility

Sales at Asos climbed by almost a fifth in the last quarter but the online fast-fashion retailer has warned that there is still significant short-term uncertainty ahead due to the Covid-19 pandemic.

The company reported revenues of almost £1.3bn for the four months to 30 June, up from £1.1bn in the same period last year. However, sales softened in the last weeks of June amid uncertainty over Covid-19 and unseasonal weather.

The fashion company, popular with twentysomethings, said it expected trading volatility to continue in the near term as the impact of Covid-19 on its supply chains and freight costs continues to dampen profits.

Shares fell 14% on Thursday morning after the trading update was published.

Shares in other retailers are lower too, with JD Sports (-1.6%) and Next (-1.4%) among the FTSE 100 fallers.

Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown says poor weather and Covid-19 uncertainty both hit ASOS:

“Bad weather and ongoing uncertainty mean ASOS’ UK sales trends weakened towards the end of June. This is to be expected – if there’s any doubt about when so-called freedom-day is going to happen, its young, core customers will hold off on buying party dresses. Heavy rain means less socialising too. With restrictions set to ease in the coming days, we could see increased demand as people gear up to hit bars and clubs once more.

There is a lot resting on sales regaining some of the lost ground, with the market clearly disappointed in the uncertainty pointed out in ASOS’ trading statement. Next quarter will be crucial because it will give a better indication of the sales pace ASOS can achieve in more normal times. By that point there should be even more clarity on social activity, and a clearer view of the shape of ASOS’ future should come into focus. It’s possible that as customers become busier and not confined to their sofas, they’ll be scrolling the ASOS app less frequently, and therefore purchase less. What these different dynamics will mean for the numbers over the medium term is yet to be seen.

In some respects it looks like normality is already returning among ASOS customers though, with returns rates climbing back to pre-pandemic levels. That’s not the best news, although it’s not unexpected. It will likely mean some dents to operating margins in the near term.”

Despite Avast’s gains, the FTSE 100 index is only slightly higher this morning at 7095 points, up 0.05%.

Energy companies are dragging the index down, with BP (-2.4%) and Royal Dutch Shell (-1.7%) following the crude price lower.

Oil dropped after reports that Saudi Arabia and the United Arab Emirates have agreed a compromise to allow Opec+ to lift output, and by inventory data showing US demand for gasoline declined last week.

Brent crude has dipped around 0.7% this morning, to $74.23 per barrel, away from the three-year highs seen in early July.

Avast shares jump after takeover talks with NortonLifeLock confirmed

Shares in cybersecurity company Avast have jumped 13% this morning after it confirmed it is in advanced talks over a takeover by rival NortonLifeLock.

Following reports overnight, Prague-based Avast told the City that:

The Board of Avast confirms that it is in advanced discussions regarding a possible merger of Avast with NortonLifeLock Inc.

There can be no certainty as to whether any transaction will take place or the terms on which any Possible Merger may be agreed. A further announcement will be made if and when appropriate.

The Possible Merger may be implemented as a cash and share offer for Avast by Norton in accordance with the requirements of the City Code on Takeovers and Mergers.

Avast says it has over 435 million users around the globe, and around 1,700 employees, and blocked 1.5bn cyber attacks each month last year.

A deal would consolidate the cyber-security industry, and also strip London of one of its few major listed tech companies.

Danni Hewson, financial analyst at AJ Bell, says:

Avast’s shares have been on a broadly upwards but still bumpy path since its own listing in 2018. Recent weakness in the share price may have alerted its rival Norton to the possibility of a tie-up and its approach continues the current wave of foreign M&A interest in British firms.

“While news of the bid will generate excitement in the short term, the UK’s already very modest-sized technology sector can ill-afford to lose one of its leading constituents.

“This reveals the wider truth that the current surge in takeover activity could have a materially negative impact on the depth, breadth and diversity of the UK stock market.

Today’s 13% jump lifts Avast’s market capitalisation from £5.2bn to nearly £5.9bn (or $8.1bn). The Wall Street Journal, which first reported the talks, said the deal could value the cybersecurity firm at more than $8 billion.

UK drug companies fined £260m for inflating prices for NHS

The UK’s competition watchdog has imposed fines totalling more than £260m on pharmaceutical companies after an investigation found that they overcharged the NHS for hydrocortisone tablets for almost a decade.

The Competition and Markets Authority (CMA) found that the drug’s makers Auden Mckenzie and Actavis UK, now known as Accord-UK, used their position as the sole providers of hydrocortisone to inflate the price of the drug.

Tens of thousands of people in the UK depend on hydrocortisone tablets to treat adrenal insufficiency, which includes life-threatening conditions such as Addison’s disease, the CMA said.

The investigation found that the companies were able to inflate the price of hydrocortisone tablets by over 10,000% compared with the original branded version on sale in 2008. This meant the amount the NHS had to pay for a single pack of 10mg tablets rose from 70p in April 2008 to £88 by March 2016.

The companies also paid would-be rivals to stay out of the market, the watchdog found.

“These are without doubt some of the most serious abuses we have uncovered in recent years,” said Andrea Coscelli, chief executive at the CMA.

“The actions of these firms cost the NHS – and therefore taxpayers – hundreds of millions of pounds.”

Sky News’s Scott Beasley says the scale of the overcharging is ‘breathtaking’:

Full story: Rishi Sunak says UK is bouncing back as payrolls soar in June

Rishi Sunak said Britain’s economy was bouncing back after the latest official figures showed the number of workers on payrolls surged in June by 356,000, my colleague Larry Elliott writes.

While the number of employees remained more than 200,000 below the level before the start of the pandemic, data from the Office for National Statistics (ONS) showed the easing of restrictions on businesses had an impact on hiring in recent months.

Evidence of an improving labour market was also provided by an increase in job vacancies to 862,000 after a rise of 241,000 between April and June. With firms struggling to find workers in some sectors, vacancies are 10% higher than they were in early 2020.

Annual pay growth in the three months ending in May stood at 7.3% – up from 5.7% in April – although the increase reflects the fact that many low-paid workers lost their jobs during pandemic-enforced lockdowns.

The director of economic statistics development at the ONS, Darren Morgan, said:

“The labour market is continuing to recover, with the number of employees on payroll up again strongly in June. However it is still over 200,000 down on pre-pandemic levels, while a large number of workers remain on furlough.

“Our first, more detailed, local figures show that since November last year, when the number of employees reached a low point nationally, the biggest growth was seen in Leicester, while the smallest was in south Hampshire.

“The number of job vacancies continued to rise very strongly. The biggest sector driving this was hospitality, followed by wholesaling and retailing.

“As the economy gradually reopened, the unemployment rate fell in March to May. This was especially marked for younger people, who had been hardest hit by earlier lockdowns.”

Melissa Davies, chief economist at Redburn, cautions that the UK labour market is weaker than today’s upbeat data suggests:

UK unemployment stands at 4.8% in June, wages are rising at 7.3% year on year and vacancies exceed pre-pandemic levels. But these upbeat data belie a much weaker labour market with plenty of spare capacity, propped up by the remains of the furlough system.

Wage growth is being literally inflated by lockdown comps and compositional effects. Labour force participation and hours worked are still substantially lower than before the pandemic.

Only once the furlough scheme has fully rolled off and isolation rules are relaxed in the workplace and schools will this excess labour supply be released back into the market, defusing temporary labour shortages and pushing up unemployment.”

Tony Wilson, director of the Institute for Employment Studies, says the UK risks a “two speed” jobs recovery, with long-term unemployed missing out on the opportunities to return to work.

“Today’s figures show that the jobs recovery continued to pick up pace through spring as restrictions eased. As we expected, the single-month estimate of job vacancies for June was the highest figure ever recorded, smashing the previous record and driven by rises across nearly all industries.

Payrolled employment also saw its strongest ever growth, with young people particularly benefiting. However despite this good news, long-term unemployment continues to rise – hitting its highest in more than five years, with long-term unemployment for older workers now at its highest since 2014.

There are now more unemployed people than there are those still on full furlough, and with the economy creating jobs we need to be doing far better at helping unemployed people to fill them. If we don’t, then we’re risking a two speed recovery with those who lost their jobs last year being left behind.”

He’s also written an informative thread about today’s data:

Resolution Foundation CEO Torsten Bell says today’s jobs data is strong - but also shows the labour market has not yet recovered:

Jobs report: political reaction

Chancellor of the Exchequer, Rishi Sunak, says today’s jobs figures show the economy is rebounding:

“As we approach the final stages of reopening the economy, I look forward to seeing more people back at work and the economy continuing to rebound.

“We are bouncing back – the number of employees on payrolls is at its highest level since last April and the number of people on furlough halved in the three months to May.

“Our Plan for Jobs will continue to create jobs and help people back in to work, through schemes like Kickstart, traineeships and apprenticeships.”

Minister for Employment Mims Davies MP says:

“In the past year we have supported over 14.5 million people across the country through our Plan for Jobs including through the Kickstart Scheme. We know that it’s not been possible to save every job, but we have protected as many as we can, whilst helping new jobseekers through our DWP programmes to secure work.

“There is still work to do as today’s figures show, but importantly we’re on the right track and pushing for recovery – with a sustained rise in the number of people on payrolls, including 135,000 more young people in work this month, and another rise in vacancies on offer as we continue on our roadmap.”

But Jonathan Reynolds MP, Labour’s Shadow Secretary of State for Work and Pensions, points to the rise in long-term unemployment:

Nearly half a million people have been unemployed for a year yet the Restart jobs scheme has been live for just three days.

Labour has a plan to buy, make and sell more in Britain so we can create the jobs of the future, nurture the skills we need and get our economy firing on all cylinders.

Labour’s jobs promise would guarantee a job or training opportunity for any young person away from work or education for six months, and ensure no one is away from work for more than a year.

Another encouraging sign - the redundancy rate has dropped back to pre-pandemic levels, after hitting record levels in the second wave of Covid-19 late last year.

UK vacancies jump over pre-pandemic levels

The number of job vacancies has risen over its pre-pandemic level as UK firms try to hire staff to handle the increased demand as the economy reopened.

In April-June there were an estimated 862,000 job vacancies, the ONS says, a jump of almost 39% compared with the previous quarter.

That’s nearly 10% above above its level in January to March 2020, and the first time vacancies have risen over that level since the pandemic began.

Almost all industries posted more vacancies compared with the previous quarter.

Arts, entertainment and recreation showing the largest percentage gain, followed by accommodation and food services, as the relaxing of restrictions prompted firms to take on staff.

The ONS says:

Among the industries that saw a growth in vacancies on the quarter, the most notable was arts, entertainment and recreation, up 330.4%. It is also notable that five industries displayed a record number of vacancies from April to June 2021 with accommodation and food service activities increasing the most by 73,400 on the last quarter to 102,000.

In this sector there is evidence of a shortage of skilled staff and of employees finding alternative areas of employment prior to the sector reopening.

Earnings jump, but underlying wage growth is lower - ONS

Today’s employment report also shows that wages surged in the last quarter, but the underlying picture is rather less rosy.

Average total pay (including bonuses) jumped by 7.3% per year in the three months to May, while regular pay was up 6.6% - the highest levels in at least 20 years, as this chart shows.

But... these average pay growth rates are being distorted by the job losses among lower-paid workers, who were hit badly by Covid-19.

Deputy national statistician Jonathan Athow has published a blog post on this issue this morning, and explains:

The analogy I like to use is height. If the shortest person in a room leaves, the average height of those remaining will rise. No-one has got taller, but the composition of the people in the room has changed, pushing up average height. In terms of average earnings, if someone paid less than the average (£540 a week) loses their job, other things equal, the average earnings will increase.

Athow also points out that the pay figures are influenced by ‘base effects’, caused by the pandemic.

In spring-summer 2020, many workers were on furlough or had their hours reduced. This meant that people saw their earnings fall, pushing down weekly wages. This year, with fewer people on furlough and hours returning closer to normal, weekly wages are higher.

So once you adjust for that, the ONS estimates that underlying regular earnings (ex bonuses) are actually rising at between 3.2% and 4.4%.

Updated

Introduction: UK payroll numbers rise as economy reopened

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

The number of UK workers on company payrolls has jumped, as the relaxation of lockdown rules saw firms take on more staff.

UK company payrolls rose by 356,000 in June from May, according to the latest estimate from the Office for National Statistics - the first full month after Covid-19 restrictions on hospitality firms, leisure venues and international travel were eased.

That’s the largest monthly increase since the pandemic began (triggering a swathe of job cuts) and lifts the total number of payroll employees to nearly 28.9 million.

The ONS says hospitality, wholesale and retail companies, and the arts and entertainment sector all took on more staff:

Three of the sectors that have had the greatest decreases have all continued to see substantial monthly increases in payrolled employees, according to flash estimates; between May and June 2021, accommodation and food services increased by 94,000 employees, wholesale and retail by 29,000, and arts and entertainment by 24,000.

However, payrolls remain 206,000 below pre-coronavirus (COVID-19) pandemic levels, highlighting the economic damage caused by the pandemic.

In a significant milestone, for the first time since the beginning of the pandemic, payroll numbers some regions are now above pre-pandemic (February 2020) levels, the ONS reports. These include North East, North West, East Midlands and Northern Ireland.

The ONS also reports that the headline unemployment rate for the three months to May was 4.8%, up from 4.7% a month ago (but lower than in the previous quarter).

The UK employment rate was estimated at 74.8%, 1.8 percentage points lower than before the pandemic, but 0.1 percentage points higher than the previous quarter.

Total hours worked in March-May increased, compared with December-February, due to the relaxation of many coronavirus (COVID-19) restrictions - but it remains below pre-pandemic levels.

The redundancy rate decreased on the quarter and has returned to pre-pandemic levels, the ONS adds.

Darren Morgan, ONS Director of Economic Statistics, says the UK labour market continues to recovery:

More to follow....

The agenda

  • 7am BST: UK unemployment statistics
  • 9.30am BST: ONS weekly economic indicators
  • 11am BST: Bank of England policymaker Michael Saunders speech “The Inflation Outlook”
  • 1.30pm BST: US weekly jobless claims
  • 2.15pm BST: US industrial production for June

Updated

 

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