Time for a recap…

Fears of weakening economic demand have hit the oil price today.

UK wage growth slowed in the last quarter, as the labour market softened, with total pay rising 4% per year in May-July.

The data means UK state pensions are likely to rise by 4% next April, if the government sticks with the triple lock.

UK grocery inflation has slowed, with prices rising by 1.7% per year.

German carmaker BMW has cut its 2024 profit margin outlook, citing weak demand in China and problems with a braking system that has led to delivery delays.

Apple has lost a high-profile, €13bn (£11bn) Irish tax battle with Brussels in a decision that will bolster the European Commission’s efforts to clamp down on favourable “sweetheart” tax deals for multinationals.

Sir Paul Marshall has sealed a £100m takeover of the Spectator magazine as the backer of GB News completes the next stage of his ambition to control a significant swathe of the UK’s conservative and rightwing media outlets.

Newsflash: The oil price has tumbled to its lowest level in over two and a half years.

Brent crude, the international benchmark, has sunk below the $70/barrel mark today, its lowest since December 2021.

It’s down 3.2% this afternoon at $69.50 per barrel.

The selloff follows the Opec group’s decision to cut its forecast for oil demand in 2024 and 2025 (see earlier post). Weaker demand is bad for the oil price, leading to fears of a glut of crude.

Fears that the US economy is slowing, and that China’s economic recovery is faltering, have also hit the oil price recently.

Data earlier today showing China’s imports grew more slowly than expected in August have added to concerns that economic demand there is weak.

As PVM Oil analyst Tamas Varga put it:

“The message from China is simple but loud and reverberates throughout the globe.”

Speaking of financial stability.…. the US Federal Reserve has cut proposed capital requirements for large US banks by more than half.

The move follows a backlash from the industry and politicians, which has spurred the Fed to rethink how it implements the Basel III international accord that was created after the 2008 financial crisis.

Under its new “re-proposals”, the largest US banks will need to increase their capital by 9%, less than half the 19% originally proposed.

Smaller banks (with assets between $100bn and $250bn) would no longer be subject to the changes, other than recognising unrealized gains and losses of their securities in regulatory capital.

The Fed’s vice chair for supervision, Michael Barr, is announcing the new plan in a speeech at the Brookings Institution, Washington, D.C.

Barr says the plan will result in a “safer and fairer banking system”, saying:

The journey to improve capital requirements since the Global Financial Crisis has been a long one, and Basel III endgame is an important element of this effort. These re-proposals bring us closer to completing the task.

The broad and material changes to both proposals that I’ve outlined today would better balance the benefits and costs of capital in light of comments received, and result in a capital framework that appropriately reflects the risks of bank activities and is tiered to the banking sector. They also bring the proposals broadly in line with what other major jurisdictions are doing.

Bank of England deputy governor Sarah Breeden has warned against creating the “stability of the graveyard” by building too much protection into the financial system.

Breeden, the BoE’s deputy governor for financial stability, has been speaking at the Wharton-IMF Transatlantic Dialogue in Washington DC.

In her speech, Breeden explains that the Bank must ensure that the system provides vital services even as shocks occur, to ensure sustainable economic growth continues.

In doing so, we must avoid the stability of the graveyard, she says, explaining:

To maintain financial stability, we have to mitigate externalities, where market participants don’t consider the impact of their actions on other participants. For example, a lender might have an incentive to lend more because their lending is secured by an asset, not considering that the borrower might have to quickly sell other assets to meet repayments if a shock hits, reducing the prices of assets held by others. Externalities can lead to fire sales, runs on financial institutions, and a worsening of economic shocks.

Of course, one way to bring about financial stability would be to try to build so much resilience in the system that, as a byproduct, very little activity occurs. A previous Chancellor called that outcome the ‘stability of the graveyard’. That wouldn’t be optimal because it would directly limit the provision of services and damage the economy even in the absence of shocks. And so accountability for our actions and considering their costs as well as their benefits are important parts of the statutory regime.

[That previous chancellor, incidentally, was George Osborne]

Breeden also produced this image, showing the Bank’s approach to financial stability:

Oil cartel Opec has cut its forecast for demand this year, and next year.

In its latest monthly report, Opec has trimmed its estimate of world oil demand growth in 2024 by 80,000 barrels per day, to around two million barrels per days.

The cut reflects “actual data received year-to-date”, Opec says.

The forecast for world oil demand growth in 2025 has been lowered by 40,000 barrels to 1.7 million barrels per day.

Opec lowered its forecast for energy demand despite slightly lifting its forecast for world economic growth this year, to 3%.

Newsflash: German carmaker BMW has cut its financial guidance for the current financial year, blaming “muted demand in China” and a problem with its braking systems.

BMW says that a problem with an Integrated Braking System (IBS) provided by a supplier has forced it to stop some deliveries, which will have a “negative worldwide sales effect” in the second half of the year.

Over 1.5 million vehicles are affected by the IBS problems, and will lead to additional warranty costs for BMW.

Weak demand from Chinese consumers is also hitting BMW’s sales.

It says:

In parallel to this effect, the ongoing muted demand in China is affecting sales volumes. Despite stimulus measures from the government, consumer sentiment remains weak.

BMW now expects its earnings before tax to “decrease significantly” this year, worse than its previous guidance for a slight fall, with profit margins lower than hoped.

Shares in BMW have dropped by almost 7%.

Students have been warned not to fall victim to criminals who use SMS or text messages to entice recipients to click on phoney links.

The Students Loans Company (SLC) says today that scam emails and text messages – known as ‘smishing’ – are currently the most popular form of scam, and are urging students to be vigilant [difficult during the delights of Freshers’ Week…].

Smishing involves students being asked to click a link to complete a task – for example verifying bank details or confirming their personal information. – so that scammers can divert money to their own bank accounts.

Scammers target students at this time of year, the SLC warns, because they receive their first maintenance loan payment.

SLC is expecting to pay £2bn to students over the autumn term. Last year, it says, it stopped £2.9m of maintenance loan payments being taken by smishing and phishing scams, where students received and acted on false communications.

Alan Balanowski, risk director at SLC, advices student who receive a suspicious message should delete it and report it immediately.

Balanowski says:

“Starting or returning to university is an exciting time, but it’s also busy, with students getting organised and set-up for the academic year, which includes dealing with information from different organisations, including ourselves.

We aim to ensure our payment process is simple for students, but we do experience a rise in smishing scams at this time of year. This means students need to be alert to any potential attempt to intercept their maintenance loan instalment.

There’s a flurry of takever drama in the City this morning, where mining company AngloGold Ashanti has agreed a deal to buy smaller rival Centamin.

Shares in Centamin have jumped 25%, to the top of the FTSE 250 leaderboard, while AngloGold Ashanti are down 6% in premarket trading.

AngloGold has agreed to pay $2.5bn in cash and shares for Centamin, which owns Egypt’s largest gold mine, called Sukari.

The deal means the London stock market will lose another member.

AJ Bell investment director Russ Mould says it’s the “end of an era” of large and medium-sized gold miners on the UK stock market.

“Centamin is one of the last pure-play gold producers remaining on the London Stock Exchange. While there are plenty of tiny exploration companies hoping to strike it rich, few have enjoyed Centamin’s level of success and built a large-scale operating mine.

“Over the years, gold producers of any notable scale have been snapped up by rivals or merged with others, leaving investors with limited options on the London Stock Exchange and effectively making them look at overseas stock markets for a broader range of gold miners.

Over in the US, optimism among small firms has dropped as bosses fret about inflation.

The Small Business Optimism Index, calculated by the National Federation of Independent Business (NFIB) fell by 2.5 points in August to 91.2.

That wipes out July’s gain, and is the 32nd month in a row below the 50-year average of 98.

NFIB’s Uncertainty Index rose to its highest level since October 2020, with nearly a quarter of business owners saying inflation was their top small business operating issue.

“The mood on Main Street worsened in August, despite last month’s gains,” said NFIB chief economist Bill Dunkelberg, adding:

“Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase. Uncertainty among small business owners continues to rise as expectations for future business conditions worsen.”

In the media world, Sir Paul Marshall has sealed a £100m takeover of the Spectator magazine.

The move means the backer of GB News completes the next stage of his ambition to control a significant swathe of the UK’s conservative and rightwing media outlets.

Goldman Sachs have predicted that Rachel Reeves could hike taxes by up to £20bn per year in next month’s budget.

In a new research note this morning, Goldman analyst James Moberly explains that the Labour government faces “a challenging fiscal outlook”. That, he says, is because the UK faces “significant in-year spending pressures” in the current financial year, and because planned spending growth in future years “looks too low”.

This indicates that spending may need to be around £25bn a year higher than budgeted for in Labour’s manifesto by the end of the Parliament, Moberly has calculated.

And that, he tells Goldman’s clients today, means increases in taxation are also likely to be required – worth “at least” £15-20bn per year.

Moberly explains:

Given that the Chancellor is likely to want to leave a somewhat larger margin of headroom than the Conservatives did in recent fiscal events, we expect that the government will aim to raise at least £15-20bn per year in additional receipts on top of the tax increases announced in the manifesto.

Moberly adds that the government could benefit if the Bank of England slows the pace of its bond sale programme (quantitative tightening, or QT) this month. Lower losses from QT could free up billions of pounds of fiscal space against the debt target.

Alternatively, Reeves could reduce the effect of the losses on the public finances by around £15bn by changing the debt rule to target headline rather than underlying net debt, he suggests.

Just in: The European Commission has won two big legal fights against US Big Tech firms this morning.

Europe’s top court has upheld a €2.42bn antitrust fine imposed on Alphabet’s Google in 2017 for abusing its dominance of the search engine market in building its online shopping service, and gaining an unfair advantage over smaller European rivals.

Apple’s attempt to avoid paying €13bn in back taxes has also been dismissed.

The EU’s Court of Justice in Luxembourg has backed a landmark 2016 decision that Ireland broke state-aid law by giving the tech giant an unfair advantage.

Back in 2020, the European general court annulled that decision – but today, the European Court of Justice has ruled that the original decision was correct.

This judgement is likely to have far-reaching effects on “sweetheart” deals for large multinationals.

Youth unemployment across the UK has hit its highest level in over three years, in a sign that young people are struggling to enter the labour market.

Today’s jobs data shows that the unemployment rate among 18-24 year olds jumped to 13.3% in May-July, up from 12% in April-June, on a seasonally-adjusted basis.

That’s the highest reading since December-February 2021.

The increase suggests that as the academic year ended, some students were unable to find work.

TUC general secretary Paul Nowak says:

“Working people are still facing major problems left behind by the Conservatives.

“Vacancies have been falling for more than two years. Millions of workers are in insecure jobs and without proper employment rights. And young people’s futures are on the line as youth unemployment rises.

“Most employers support the new government’s plans to make work pay and strengthen workers’ rights. It’s time to move on from the low-pay, low-rights approach that has failed so many people so badly.”

Good news for shoppers – grocery inflation has fallen.

Data provider Kantar reports that annual grocery price inflation was 1.7% in the four weeks to 1 September, down from 1.8% last month.

That will ease some of the pressure on household budgets – but even so, Kantar also flags that nearly 60% of UK households are worried about the rising cost of their shopping

Fraser McKevitt, the researcher’s head of retail and consumer insight, says:

“This is their second biggest financial worry, only behind home energy bills.”

Kantar reports that prices are fastest for vitamin and mineral supplements, chilled fruit juices and chocolate confectionery.

But toilet tissue, dog food and bottled cola drinks are among the items whose price is falling.

Kantar also reports that online supermarket Ocado was again the fastest growing grocer with sales up 12.9% year-on-year in the last monthr.

Tesco’s sales rose by 5.3%, while Sainsbury’s grew 5.7%.

Asda struggled, though, with a 5.6% fall in sales last month – adding to the pressure on the company after a poor summer.

While the government may be handing pensioners an increase in the state pension with one hand, it is taking away the winter fuel allowance from around nine million pensioners with the other.

That controversial decision to means-test the winter fuel payment means only poorer old people – who get pension credit – will still receive it.

So much of the increase in the state pension will be eaten away by that move, and by rising prices in the shops.

Myron Jobson, senior personal finance analyst at interactive investor, explains:

“It is all but confirmed that the state pension will rise in line with average earnings, as the headline inflation figure for September is not expected to come in higher.

“While the £460 increase in the state pension may seem like a welcome boost on the surface, many pensioners won’t feel any richer thanks to the double whammy of inflation, which continues to erode the real value of any pension increment, and the loss of the £300 Winter Fuel Payment, which is now means-tested.

“Our calculations offer a stark reminder that while the state pension is a vital component of retirement income, it falls short of covering even the minimum income needed to enjoy a comfortable retirement. Worryingly, our research has exposed a looming national pension emergency, with people at the crunch stage of their retirement planning not saving enough into their pensions to secure a comfortable living standard in retirement.

The number of workers on payrolls fell in the last two months – a sign that the jobs market may have cooled a little in July.

The ONS estimates that the number of payrolled employees in the UK decreased by 6,000 between June and July 2024.

But on an annual basis, payrolls were 203,000 higher than in July 2023 .

And in August, the ONS’s early estimate is that payrolled employees decreased by 59,000 month-on-month.

The number of people classed as economically inactive has dropped, but remains near record levels.

There were 9.298m people neither in work nor looking for a job in May-July, a drop of 136,000 in the quarter.

That has pulled the inactivity rate down to 21.9%, from 22.2% last month.

The ONS says:

The quarterly decrease in economic inactivity was mainly caused by those who are inactive because they are students, long-term sick, or retired. These decreases were partially offset by increases in those who are economically inactive because they are discouraged workers (meaning that they are eligible for employment but unemployed and not seeking work) and those inactive for “other” reasons.

Yesterday, Work and Pensions Secretary Liz Kendall held a meeting with labour market experts to discuss how to tackle economic inactivity – which the government calls ‘greatest employment challenge for a generation’.

Yael Selfin, chief economist at KPMG UK, fears the problem will not be solved fast:

“The high level of inactivity is expected to persist in the near term, as the number of long-term sick and the backlog in NHS waiting lists are likely to remain elevated. That could put pressure on the economy if demand recovers unexpectedly strongly.

Today’s UK jobs report also shows that the unemployment rate has fallen to 4.1% for the May to July quarter.

That’s down from 4.2% in April-June.

During the quarter, unemployment fell by 74,000 people to 1.437 million.

And employment rose in the quarter – it’s up by 265,000 to 33.232 million, to 74.8% of the population.

Newsflash: UK wage growth has slowed… but pensioners on the new state pension should still be guaranteed an increase of around £460 next year.

The latest UK labour market statistics, just released, show that total pay (including bonuses) rose by 4% in the May-July quarter.

And under the UK’s triple-lock pension pledge, that indicates that the new state pension should also rise by 4% next year.

That would lift the new state pension – currently £221.20 per week – up to around £230 per week, an increase of almost £9 a week from next April.

On an annual basis, it would increase the new state pension from £11,502.40 per year to £11,962 per year, an increase of £460 a year.

The final decision on the state pension will be taken by the secretary of state for work and pensions, Liz Kendall, before October’s budget. But chancellor Rachel Reeves has already pledged the government’s backing of the triple lock until the end of this parliament.

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

We’re about to get a new healthcheck on the UK jobs market, and learn by how much the state pension should increase by next year.

The latest labour market statistics, due at 7am, are expected to show the unemployment rate dropped to 4.1% in May-July, down from 4.2% a month ago.

But wage growth is also expected to have slowed; total pay (including bonuses) is expected to have risen by 4.1% in the quarter, down from 4.5%.

And that will have implications for pensioners.

Under the UK’s triple-lock system, the state pension should rise each year by either inflation (the previous September), average earnings (for May-July), or 2.5%.

Inflation is not expected to rise sharply again this year (it was last clocked at 2.2%), so it’s today’s earnings figures that will be crucial.

The new State Pension is £221.20 a week, or £11,502 per year.

So, if wages did indeed rise by 4.1% in May-July, that would lift the state pension by just over £9 per week to around £230 per week. In annual terms, that’s over £470 more, to £11,973 a year.

Labour pledged to maintain the triple lock in their election manifesto. And last night, chancellor Rachel Reeves told a meeting of the Parliamentary Labour Party:

“Tomorrow, we get data for earnings growth, which will inform the increase in the pension next year. We are protecting the triple lock, not just for this year, but for the duration of this Parliament.”

Reeves also faces a crunch vote on the government’s controversial plan to scrap the winter fuel allowance.

The agenda

• 7am BST: UK labour market statistics

• 8am BST: Kantar grocery sales figures 8am

• 9.30am BST: Mortgage lending statistics from the FCA

• 1.55pm BST: US Redbook index of retail sales