The much-discussed problems with the UK’s employment data are making it harder for the Bank to tell what’s actually happening in the jobs market, Clare Lombardelli points out.
The Bank’s deputy governor also says it’s “uncertain” what impact the increase in employer national insurance contributions will have.
Lombardelli tells the Bank of England Watchers Conference:
We are hampered by the challenges of the quality of data, in particular in the Labour Force Survey.
There have also been recent changes to the costs of employment from the combination of the increase to the National Living Wage, the rise in employer National Insurance Contributions and potentially the changes to workers’ rights. Although the size, timing and interaction of these effects are uncertain.
Clare Lombardelli also cites concerns about inflation in the services sector.
She tells the Bank of England’s conference that services inflation is still above its pre-pandemic average, having been recorded at 5% in October. The Bank expects it to stay around that rate for another few months, she says.
Lombardelli argues that wage rises, rather than profit-seeeking, is fuelling services inflation, saying:
Wages are a material driver of services prices, and the slower-moving nature of services inflation reflects in large part the relatively high ‘stickiness’ of wages compared with other prices…
In principle, higher-than-usual profit margins could also be driving the current elevated services inflation. But we regularly monitor developments in companies’ margins and there is little evidence of that.
BoE's Lombardelli: Too early to declare victory on inflation
Newsflash: A deputy governor at the Bank of England has warned that it is “too early to declare victory” in the fight against inflation.
Clare Lombardelli has told a conference at the Bank this morning that inflation has fallen steeply over the past two years. But, she is concerned that there are signs that the process of “wage disinflation” may be slowing, which would keep the cost of living rising faster than the Bank’s target.
She cites data from the Bank’s Decision Maker Panel (DMP) survey, which shows that UK businesses expect to raise pay by between 2% and 4% next year.
Wage growth would need to be around 3% to be consistent with inflation at target, Lombardelli says, suggesting that higher earnings growth would make it harder for the Bank to cut interest rates.
Opening today’s Bank of England Watchers Conference in London, Lombardelli says:
The outlook for wages and services prices is unclear from here.
We need to see more evidence that wage growth and services inflation will continue their journey down to target-consistent rates.
ut there are some signs that the process of wage disinflation may be slowing, as shown in Chart 5, so it’s too early to declare victory on inflation. It’s often been said that the last mile may be the hardest, and that’s where we are now.
In her first speech as Deputy Governor for Monetary Policy, Lombardelli concludes:
The UK economy has made good progress on disinflation. The shocks that drove inflation up have dissipated and inflation has returned to around target.
But the more persistent components of inflation and uncertainties around how the labour market will evolve are cause for concern. So we need careful observation of all the relevant economic data and intelligence as we seek to gradually reduce policy restriction.
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Anglo to sell Australian coal mines to Peabody for up to £3bn
In the mining sector, Anglo American has agreed a deal to sell its remaining coal operations in Australia to US rival Peabody Energy for up to $3.78bn (£3bn).
The sale is part of Anglo’s push to focus on copper and iron ore production, after it fought off a takeover approach from BHP Group earlier this year.
The six-month freeze preventing BHP making another approach expires at the end of this week, although its chair said last month that BHP had “moved on”, and will focus on other growth opportunities instead…
Barclays: We don't accept FCA's findings, but want to end the issue
Barclays has confirmed that it has withdrawn its legal action against the FCA, paving the way for this morning’s fine.
But, the bank also says that it doesn’t accept the FCA’s findings over its Qatari fundraising – but is keen to ‘draw a line’ over the long-running issue.
In a statement just released, Barclays says:
Barclays PLC (“Barclays”) announces that it has agreed with the Financial Conduct Authority (the “FCA”) to withdraw its references to the Upper Tribunal (the “Reference”) of the Decision Notices regarding Barclays and Barclays Bank PLC concerning the 2008 capital raisings, first published by the FCA on 23 September 2022 (the “Decision Notices”).
In view of the time elapsed since the events, Barclays wishes to draw a line under the issues referred to in the Decision Notices and has decided not to contest the Decision Notices further.
Barclays does not accept the findings of the Decision Notices and this has been acknowledged by the FCA.
Notwithstanding the difference of view, Barclays has concluded that the interests of the Bank, its shareholders and other stakeholders are best served by withdrawing the References.
A provision in respect of the financial penalty imposed by the FCA was taken in 2022 and there is no material financial impact on Barclays.
Barclays fined £40m over 2008 Qatari deal
Newsflash: Barclays has been fined £40m by City regulators over allegedly secret payments it made to Qatari investors during the financial crisis 16 years ago.
The Financial Conduct Authority has announced it has fined Barclays £40m “for its failure to disclose certain arrangements with Qatari entities in 2008”, which the regulator says was “reckless and lacked integrity”.
The fine relates to the £322m the bank paid to Qatar in 2008, allegedly in exchange for the gas-rich Gulf state investing £4bn in Barclays, helping save the lender from a UK government bailout.
The fees were seen by critics as a way for Qatar to effectively purchase Barclays shares at a heavily discounted price that was not offered to other investors, when the City was reeling from the financial crisis.
The FCA had provisionally proposed fining Barclays £50m – which the bank was appealing against.
That case had been due to be heard in the Upper Tribunal today, but the FCA says Barclays has now withdrawn its referral.
Steve Smart, joint executive director of enforcement and market oversight at the FCA says:
‘Barclays’ misconduct was serious and meant investors did not have all the information they should have had. However, the events took place over 16 years ago and we recognise that Barclays is a very different organisation today, having implemented change across the business.
‘It is important that listed firms provide investors with the information they need.’
The FCA also says it recognises that this case concerns disclosure decisions made in the context of “very large and complex capital raisings” that took place many years ago under “considerable market pressure” in October 2008 (following the collapse of Lehman Brothers).
Back in 2020, three former Barclays bankers accused of funnelling secret fees to Qatar in exchange for emergency funding at the height of the 2008 financial crisis were been found not guilty of fraud.
The FCA originally revealed it was investigating the controversial fee arrangements back in 2013, but paused its investigation during a criminal trial launched by the Serious Fraud Office (SFO). However, the SFO failed to win a trial against Barclays over the Qatar deal, and the case collapsed in 2018.
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The US dollar is dipping this morning after Donald Trump picked hedge fund manager Scott Bessent to be the next US Treasury secretary.
This has lifted the pound up by almost half a cent, to $1.257, away from last Friday’s six-month low.
The euro, which hit a two-year low last week, is up almost half a cent too, at $1.045.
Jim Reid of Deutsche Bank says markets are reacting constructively to the choice of Bessent. He told clients:
Bessent, a hedge fund CEO, is known to be a fiscal hawk so this should ease some of the more extreme deficit fears as he has advocated a 3% deficit by 2028.
In practise that will be extremely tough but for now the market can be a bit relieved. He is also thought to be less extreme on trade policy than some of his rivals for the job.
CBI chief executive Rain Newton-Smith has spoken to Radio 4’s Today Programme about the group’s concerns over the budget, ahead of today’s conference.
Q: Rachel Reeves will say she’s heard “no alternative” to her plans, what’s your response?
Newton-Smith says the business leaders she’s spoken to have said the decisions made the budget make it harder for them to invest and to hire people.
Business investment growth is weaker because of the decisions taken in the budget, she warns.
Q: If more money for public services is needed, isn’t it fair to raise it from companies making billions of pounds in profits?
Newton-Smith says “no-one is questioning” that tax rises are needed to fund public services.
But the challenge with increased national insurance contributions (NICs) is that hits all businesses before they’ve made a profit, so it leads to “serious” pain on businesses.
The CBI wants the government to “double-down” on measures to help businesses.
That could include reforming business rates to remove pressure on businesses, such as in aviation and hospitality.
The industrial strategy must make it easy for businesses to invest and hire.
Q: Were Labour honest with business in the run-up to the Budget?
The chancellor did talk about the need for tough choices, Newton-Smith points out.
But… lowering the NICs threshold hits businesses offering opportunities to people entering the labour market for the first time, she adds.
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Greggs: Budget tax rises won't slow our expansion
The boss of Britain’s Greggs has pledged that its expansion plans will not be derailed by the new Labour government’s tax raising budget.
Greggs CEO Roisin Currie has told Reuters said that although she supported higher wages, changes to tax thresholds were an unwelcome surprise.
Currie said the measures would increase its annual costs by tens of millions of pounds, but also predicted that any customer price rises likely to only be “pennies”.
Currie says:
“Our shop growth plan, our supply chain investment, none of that changes. We are still absolutely going for growth.”
Currie also ruled out slashing the bonus distributed to employees to cover the costs of the budget, saying the bonus was “absolutely sacred”.
Kingfisher: NICS increase will cost us £31m
DIY chain Kingfisher has blamed the budget for hitting consumer confidence, and revealed that increases to employer national insurance contributions will cost it £31m.
Kingfisher has slightly lowered its earnings guidance this morning, it now expects adjusted pre-tax profits to be between £510m to £540m, down from £510m-£550m previously.
Thierry Garnier, chief executive officer of Kingfisher, says:
“Overall trading in the third quarter was resilient. Improved performance in August and September was offset by the impact of increased consumer uncertainty in the UK and France in October, related to government budgets in both countries.
Garnier adds that “recent political and macroeconomic developments” have layered incremental uncertainty onto the near-term outlook in its markets.
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Reeves to defend her budget to the CBI
Rachel Reeves is expected to tell business leaders that they have offered “no alternatives” to her plans, in a defiant defence of her tax-raising budget today.
Reeves will tell the CBI’s annual conference in Westminster that no one has offered a better solution to the challenging situation left behind by the previous, Conservative government.
“I have heard lots of responses to the government’s first budget but I have heard no alternatives,” she is expected to say.
“We have asked businesses and the wealthiest to contribute more. I know those choices will have an impact. But I stand by those choices as the right choices for our country: investment to fix the NHS and rebuild Britain, while ensuring working people don’t face higher taxes in their payslips.”
Here’s the full story:
Introduction: Budget tax rises will hurt hiring, say bosses
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK businesses are warning today that the tax rises in last month’s budget have put a ‘heavy burden’ on them, putting firms off hiring.
Business leaders are gathering at the Queen Elizabeth II Centre in central London for the Confederation of British Industry (CBI)‘s annual conference. They’ll hear from chancellor Rachel Reeves, and leader of the opposition Kemi Badenoch, after a breakfast with Bank of England (BoE) governor Andrew Bailey.
And the message from the CBI is that Reeves’s first budget will hurt profits, leading to lower investment and growth.
A survey conducted by the CBI after the budget found that nearly two-thirds of firms thought the budget will damage UK investment with half of firms looking to reduce headcount as a result.
CBI CEO Rain Newton-Smith will tell firms today that “tax rises like this must never again simply be done to business.”
She’s expected to say:
“What really defines growth – is the decisions made in boardrooms up and down the country.
It’s CFOs and CEOs asking: can we afford to invest? Can we afford to expand? Can we afford to take a chance on new people?
Well after the Budget, the answer we’re hearing from so many firms is still – not yet.
The rise in National Insurance and the stark lowering of the threshold, caught us all off guard.
Set alongside the expansion and rise of the National Living Wage – which everyone wants to accommodate – and the potential cost of the Employment Rights Bill changes… they put a heavy burden on business.”
She will then warn:
When you hit profits, you hit competitiveness, you hit investment. You hit growth.
Data last Friday showed that the UK private sector is stagnating this month, following the budget at the end of October.
The CBI, which was hit by claims of sexual misconduct and a ‘toxic culture’ last year, is now hoping to have a greater influence over government policy again. Newton-Smith is expected to commend the government for “drawing the curtain on a near decade of instability” but urge them to shift from “consultation to co-design”.
Reeves's budget, at the end of October, included £40bn of tax rises to boost public spending, including £25bn from increasing employer national insurance contributions.
The conference will be wrapped up by CBI president Rupert Soames. Back in February, he told us that the Guardian’s revelations about sexual misconduct at the lobbying group were “an appalling shock” that tipped it into a “near-death experience”.
Soames said the scandal had triggered an existential crisis; today’s conference will be a test of how well his rescue operation is going.
Among the speakers at today’s conference is the US Embassy’s Deputy Chief of Mission, Matthew Palmer, who will discuss the US political situation.
Also coming up
The Bank of England are holding a conference today too, with economists and other ‘watchers’ of the UK central bank – we’ll be watching for any hints on how quickly it will keep cutting interest rates.
Financial markets will be digesting Donald Trump’s nomination of Scott Bessent, a billionaire hedge fund manager, to be the next US Treasury secretary. Bessent is seen as a Wall Street-friendly pick.
The agenda
9am GMT: Bank of England deputy governor Clare Lombardelli speaks at BoE Watchers’ conference
10.05am GMT: Opening keynote address at CBI conference from Rain Newton Smith
Noon GMT:
1.30pm GMT: Conservative leader Kemi Badenoch speaks at CBI’s annual conference
4.10pm GMT: CBI holds fireside chat with ‘senior cabinet minister’ (probably Reeves)
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