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

1.58pm BST

On US PPI, Paul Ashworth , chief North America economist at Capital Economics , says:

The muted 0.1% m/m increase in final demand PPI and unchanged core PPI for July is not quite as good as it looks, but it is nevertheless consistent with the Fed’s preferred core PCE prices measure increasing at a below-2% annualised pace.

1.56pm BST

Here’s some early reaction to the slowdown in US producer price inflation last month, from Steve Matthews of Bloomberg….

… and KPMG macro-economist Meagan Martin-Schoenberger:

1.41pm BST

US PPI inflation eases

Newsflash: US goods and services producers raised their prices at a slower rate last month.

That may indicate that inflationary pressures in the US economy are easing, paving the way for interest rate cuts next month.

The Producer Price Index for final demand increased 0.1% in July, down from a 0.2% increase in June, the US Bureau of Labor Statistics reports.

Altough goods prices rose by 0.6% in July, this was countered by a 0.2% decline in services prices – the biggest monthly decline since March 2023.

This pulled the annual PPI index down to 2.2% in the year to July, down from 2.7% per year in June, to the lowest since March.

These PPI indices can be a gauge of how consumer price inflation will evolve, as producer price rises, or falls, are passed onto shoppers.

Updated at 1.53pm BST

12.46pm BST

Crest Nicholson have also put a statement out, insisting it remains confident about its prospects now Bellway have walked away.

Crest tells the City:

As previously announced, the Board of Crest Nicholson had engaged with Bellway in relation to a possible all-share offer for Crest Nicholson in response to a series of unsolicited proposals from Bellway.

As outlined in its half year results on 13 June 2024 for the period ended 30 April 2024, Crest Nicholson remains confident in its standalone prospects, in particular given conclusion of the review of provisions for completed development sites supported by external consultants, its highly attractive land portfolio and the new leadership of Martyn Clark.

12.43pm BST

Bellway drops plans for Crest Nicholson takeover

Newsflash: UK building company Bellway has walked away from talkeover talks with smaller rival Crest Nicholson.

Bellway has just told the City that it does not intend to make a firm offer for Crest Nicholson .

That ends a three month courtship; Crest had rejected Bellway’s initial approaches in April and May , before saying in July it was ‘minded to accept’ an improved offer worth £720m.

Bellway don’t say why it is dropping its chase for Crest, but tells shareholders:

As noted in its trading update released on 9 August 2024, Bellway remains confident that its robust balance sheet and operational strength, combined with the depth and quality of its land bank, will enable Bellway to deliver volume growth in the years ahead and support ongoing value creation for shareholders.

Shares in Crest Nicholson have dropped by 9%, to 240p, from 263.4p. Bellway’s latest all-share proposal, in July, implied a value of 273p per share.

Bellway’s deadline to make an offer for Crest had recently been extended to 20 August, from 8 August.

Updated at 12.50pm BST

12.29pm BST

US small business sentiment near 2.5-year high

Over in the US, small-business confidence has jumped to the highest level in nearly two and a half years.

The National Federation of Independent Business (NFIB) reported today that its Small Business Optimism Index rose 2.2 points to 93.7 last month. That’s the highest reading since February 2022 (but still below the long-term average of 98 points).

That may ease some of the concerns about a possible US recession which are worrying global investors ( see earlier post ), and which sparked last week’s market selloff.

NFIB cautioned, though, that inflation remains the top issue among small business owners, with 25% reporting it as their single most important problem in operating their business, up four points from June.

NFIB chief economist Bill Dunkelberg says:

“Despite this increase in optimism, the road ahead remains tough for the nation’s small business owners.

“Cost pressures, especially labor costs, continue to plague small business operations, impacting their bottom line. Owners are heading towards unpredictable months ahead, not knowing how future economic conditions or government policies will impact them.”

11.58am BST

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

11.39am BST

BofA: US recession is top 'tail risk' in markets

A US recession is now the biggest “tail risk” to the financial markets, according to a poll of European fund managers today.

Bank of America reports that 39% of global investors regard a US recession as the biggest tail risk for the markets, up from 18% a month ago.

This is followed by geopolitical conflict, at 25%, and higher inflation, at 12%.

BofA also found that 76% of global investors see a soft landing – in which inflation is brought down without a recessoin – as the most likely outcome for the global economy, up from 68% last month.

A ‘hard landing’ (in which high interest rates trigger a recession) is now expected by 13%, up from 10% previously.

Just 8% project a no-landing – in which economies keep growing and inflation isn’t brought back to target – down from 18%.

The number of fund managers expecting softening global growth over the coming year has also risen, with many concerned that interest rates are too high.

BofA explains:

A net 50% believe that monetary policy is too restrictive globally, the highest since 2008.

Concerns are centred around the US, following this month’s weaker-than-expected US jobs data, with 72% expecting a growth slowdown in response to tight monetary policy.

10.57am BST

IEA: Chinese oil demand has contracted again

In the energy word, there has been a “marked slowdown” in Chinese oil demand growth, industry body the International Energy Agency has warned.

In its latest monthly oil market report, the IEA reports that Chinese oil demand contracted for a third consecutive month in June. The drop was driven by a slump in industrial inputs, including for the petrochemical sector, the IEA reports.

The agency adds that the latest trade data from China suggests there will be further weakness in July, as crude oil imports sank to their lowest level since September 2022 when the Chinese economy was locked down in the Covid-19 pandemic.

But this drop in demand is being balanced by stronger demand in advanced economies, especially for US gasoline, has shown “signs of strength in recent months”, the IEA says.

The US economy, where one-third of global gasoline is consumed, has outperformed peers, with “a resilient service sector buttressing miles driven”, it adds.

Overall, global oil demand increased by 870,000 barrels per day in the second quarter of the year.

The IEA adds that oil supply is struggling to keep pace with peak summer demand; this has tipped the market into a deficit, and means oil inventories have been run down.

Updated at 11.02am BST

10.39am BST

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…

Related: Ukraine says it has seized 1,000 sq km in Kursk offensive as Putin vows ‘worthy response’

10.22am BST

Economic outlook for Germany is “breaking down”

Over in Germany, investor confidence has tumbled at the fastest rate in just over two years.

Economic research institute ZEW has reported that its Indicator of Economic Sentiment for Germany recorded a steep decline in August 2024. It fell to 19.2 points, down from 41.8 points in July.

ZEW president professor Achim Wambach , warns that the economic outlook for Germany is “breaking down”.

In the current survey, we observe the strongest decline of the economic expectations over the past two years. Economic expectations for the eurozone, the US and China also deteriorate markedly. As a result, especially the expectations for export-intensive German sectors decline.

It is likely that economic expectations are still affected by high uncertainty, which is driven by ambiguous monetary policy, disappointing business data from the US economy and growing concerns over an escalation of the conflict in the Middle East. Most recently, this uncertainty expressed itself in a turmoil on international stock markets.

We already know that Germany is on the brink of recession, after its GDP shrank slightly in April-June.

Updated at 11.46am BST

10.00am BST

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%.

9.57am BST

UK mortgage rates drop to six-month low

UK lenders are continuing to cut mortgage costs, following the Bank of England’s interest rate cut this month.

Data provider Moneyfacts reports that the average 2-year fixed residential mortgage rate today is 5.67%, down from 5.70% on Monday.

The average 5-year fixed residential mortgage rate today is 5.31%, down from 5.33% yesterday.

The last time the average two-year fix and five-year fixes were lower than today’s rates was Febrary 2024, according to Moneyfacts .

9.29am BST

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.

Updated at 9.30am BST

8.51am BST

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.

8.36am BST

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.

8.27am BST

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.”

8.08am BST

The slowdown in pay growth in April to June is a “big win” for the Bank of England, says Thomas Pugh , economist at leading audit, tax and consulting firm RSM UK.

Pugh says the Bank’s monetary policy committee (MPC) will welcome the slowdown in wage growth in the private sector [workers may not agree, of course!].

He explains:

Regular private sector pay growth has dropped from 5.6% to 5.2% in June, that’s only a fraction above the MPC forecast of 5.1%. Wage growth should continue to trend down over the rest of this year as 2% inflation is factored into pay settlements.

“If wage growth does continue to fall over the rest of this year, it would give the MPC ample cover to cut rates again towards the end of the year, probably in November, and then be more aggressive in its rate cutting cycle in 2025, so we currently have four cuts pencilled in for next year.

“Just as importantly for households, real wages grew by 2.4%. That, combined with rising consumer confidence, should give a boost to consumer spending in the second half of this year, helping a consumer spending driven recovery.”

8.01am BST

UK grocery inflation rises

Newsflash: UK grocery inflation has risen for the first time since March last year, returning to the rate seen before the start of the cost of living crisis .

Supermarket prices were 1.8% higher than a year ago in the four weeks to 4 August, up slightly from 1.6% in July , according to retail analysts Kantar . This rise comes after 17 months of easing inflation from a peak of 17.5% to its lowest point since September 2021 last month.

There is a mixed picture on supermarket shelves, with prices rising across 182 product categories while the cost of 89 others dropped. Kitchen towels and baked beans are 7% and 5% cheaper respectively than this time last year.

Fraser McKevitt , head of retail and consumer insight at Kantar , said:

“Having reached its lowest rate in almost three years in July, August saw inflation nudge up again slightly. While this is noticeable following 17 straight months of falling rates, it actually marks a return to the average levels seen in the five years before the start of the cost of living crisis.

“With this kind of pricing spread, shoppers will find that the type of product they’re putting in their baskets will really dictate how much they pay.”

7.55am BST

Pound hits one-week high after UK jobs report

Sterling is rallying in early trading, as traders react to the drop in UK unemployment.

The pound has gained almost half a cent, or 0.33%, this morning to reach $1.2809, the highest since 5 August.

7.46am BST

Political reaction

Chancellor Rachel Reeves says there is “more to do in supporting people into employment”, after today’s jobs data showed another rise in people classed as economically inactive.

Reeves says:

“Today’s figures show there is more to do in supporting people into employment because if you can work, you should work.

“This will be part of my Budget later in the year where I will be making difficult decisions on spending, welfare and tax to fix the foundations of our economy so we can rebuild Britain and make every part of our country better-off.”

Work and Pensions Secretary, Liz Kendall MP, says the Labour government will help people get back to work:

“This is yet more evidence of the dire inheritance we face, with millions of people denied the support they need to get work and get on at work, harming their opportunities and holding back growth.

“This government will deliver the change the country is crying out for by making work pay, transforming skills, overhauling jobcentres and giving local areas the power they need to drive jobs and growth.”

7.42am BST

An estimated 100,000 working days were lost because of labour disputes across the UK in June 2024, the ONS reports.

The majority of the strikes were in the health and social work sector, with junior doctors starting a five-day strike on 27 June .

7.39am BST

Premier Miton: UK economy is performing well

There’s nothing in today’s UK unemployment report to spook the markets, suggest Neil Birrell, chief investment officer at Premier Miton Investors:

“It was weak US jobs data that sent markets into a tailspin, but there is no need to worry about that in the UK. The labour market is stronger than expected, with wage growth pretty much in line.

The UK economy is performing well, which will be a boost to the new government, but there probably isn’t enough in these numbers to change Bank of England policy for now.”

7.37am BST

Across the economy, the finance and business services sector saw the largest annual regular growth rate at 6.2%.

Pay grew slowest in the construction sector, at 3.5%.

7.37am BST

Public sector pay growth outpaces private sector

That NHS one-off bonus from June 2023 helped public sector pay to grow faster than in the private sector, in April-June.

The Office for National Statistics reports that annual average regular earnings growth for the public sector “remains strong” at 6.0% in April-June, down from 6.4% in the previous quarter.

Private sector pay growth slowed to 5.2% – the lowest since March to May 2022 (when it was 5.1%).

7.33am BST

UK wage growth hits lowest rate in two years

UK wage growth slowed in the quarter – but earnings kept rising faster than inflation.

The ONS reports that regular pay (excluding bonuses) rose by 5.4% in April to June. That’s the lowest increase since May to July 2022 (when it was 5.2%).

Growth in total pay (including bonuses) slowed more sharply, to 4.5% (from 5.7% a month ago). However, this data is distorted by one-off bonus payments made to NHS staff in June 2023.

If you adjust for CPI inflation, regular real pay rose by 3.2% on the year, the same as the previous three-month period. It was last higher in June to August 2021, when it was 3.4%.

Total real pay rose by 2.2% on the year in April to June.

The slowdown in wage growth could encourage the Bank of England to cut interest rates twice more before Christmas, suggests Capital Economics .

They told clients:

The further easing in wage growth will be welcomed by the Bank of England as a sign that labour market conditions are continuing to cool. This lends some support to our forecast that the Bank of England will press ahead with two more 25bps interest rate cuts later this year.

7.32am BST

Introduction: UK jobless rate drops

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

Unemployment across the UK has dropped unexpectedly, as more people find work – or drop out of the labour market altogether.

The latest labour market data, just released, show that the UK unemployment rate has fallen to 4.2% in April-June – the last quarter before the general election in July.

Economist had expected a rise, from 4.4% to 4.5%.

But according to the Office for National Statistics, 51,000 fewer people were unemployed in the quarter, taking the total down to 1.435 million.

Employment picked up, by around 97,000 people, to 33.094 million.

But more people dropped out of the labour market altogether -- often due to sickness, or caring responsibilities – lifting the economic inactivity rate to 22.2%.

The ONS also estimates that vacancies in the UK decreased in May to July 2024 by 26,000 on the quarter, to 884,000.

ONS director of economic statistics Liz McKeown says:

“There was a fall in the unemployment rate, which is now lower than a year ago. Meanwhile, there was a modest increase in both the total numbers of people in employment and the number of employees on payroll in the latest quarter.

“However, the medium-term picture remains somewhat subdued with the employment rate still lower than a year ago and the growth rate in the number of payrolled employees having slowed over the year.

“The number of job vacancies continues to decline, although the total number remains above pre-pandemic levels.”

The data kicks off a busy few days for UK economic data – it’s inflation tomorrow, then the first estimate of UK GDP for April-June on Thursday, and finally retail sales on Friday morning.

The agenda

• 7am BST: UK labour market data

• 8am BST: Kantar index of UK supermarket inflation

• 10am BST: IEA monthly oil market report

• 10am BST: ZEW index of eurozone economic confidence

• 1.30pm BST: US PPI index of producer price inflation

Updated at 7.32am BST