This week, headlines shouted loudly that the UK’s unemployment rate hit its highest level in four years, having ticked up to 4.8% in the three months to August. While those figures are indeed true, the feeling amongst economists suggest the worst effects of recent employer cost pressures – such as higher National Insurance contributions – may now be behind us, visible only in our rear-view mirrors.
After businesses held back on hiring through the first half of the year, payroll data indicates a 10,000 increase in employment between July and August. Meanwhile, job vacancies fell in September by the smallest margin since mid-2022, suggesting a tentative stabilisation in a labour market that has been exhibiting overall moderation of late. At the same time, UK average regular earnings growth slowed slightly to 4.7% in the three months to August. Taken together, the latest data offers meaningful (but mixed) signals for the Bank of England as it weighs the next steps in monetary policy. While easing wage pressures may provide them with more wiggle room to reduce rates (since slowing wage increases is less likely to stoke inflation), the marginal stabilisation of the latest jobs data makes the need for cuts far less urgent than headlines would perhaps have us believe.
On Tuesday, the British Retail Consortium published a report illustrating that total retail sales increased by 2.3% year on year in September versus 3.1% in August. The upcoming budget and unseasonably mild weather have both dampened consumer spending, while the increase in food sales value has largely been driven by higher grocery prices rather than volume.
And they’re at it again! Markets slipped on Tuesday amid renewed tensions between the US and China, sparked by reports that both sides are imposing additional port fees on ocean shipping firms. China clarified that vessels built domestically would be exempt but confirmed it had already begun levying charges on particular U.S. ships. In a statement, China’s commerce ministry urged the US to reverse tariffs originally introduced under President Trump and reviewed by the Biden administration, warning it would “see it through to the end” if no action is taken. The escalation follows a series of combative exchanges between the two nations over trade issues in recent weeks and preceded further threats from Trump for a cooking oil embargo on the region just last night. And yet, as we have reiterated before, US–China trade dynamics – while aggressive in rhetorics – are rarely static and with mutual economic interests at stake, it’s unlikely either side will allow tariff disputes to spiral unchecked and disadvantage their own industries.
Yesterday afternoon, traders heard the last comments from Fed Chair Jerome Powell before policymakers meet in two weeks. Maintaining their commitment to a data dependent stance, Powell reassured investors that authorities had more data to draw upon to decide on monetary policy than that blocked by the recent government shutdown. The Fed cater to a dual mandate of both employment and inflation, both of which are considered to be in the same place as September, Powell said, with growth even potentially better than expected. Despite policy taking longer to filter through to jobs and inflation, he also noted that as risks come more into balance, policy needs to move toward a more neutral stance – a comment which resulted in both the S&P 500 and NASDAQ gaining 1% in early trading.
Still to come this week we have UK GDP, US PPI and retail sales and the Eurozone’s inflation rate.
Nicola Tune, Portfolio Specialist