UK basic wage growth hits record high; Russia’s central bank lifts rates to 12% – business live

Sarah Butler

Here’s our full story on grocery price inflation:

Food price inflation in the UK eased to 12.7% last month, the second sharp drop in a row, as the price of milk fell back but eggs, sweets and oven chips continued to increase in price.

Price rises slowed for the fifth month in a row in the four weeks to August 6, market research group Kantar reported on Tuesday.

Fraser McKevitt, the head of retail and consumer insight at Kantar, said the 2.2 percentage point reduction in the pace of price rises was the second sharpest month-on-month fall in inflation it had recorded since 2008.

The number of companies going bust in the UK declined last month but remained higher than before the pandemic, according to the latest stats.

Some 1,727 companies became insolvent, 6% lower than in the same month last year. But this was higher than levels seen while the government support measures were in place during the pandemic, and also higher than pre-pandemic numbers.

There were 248 compulsory liquidations in July 2023, 81% higher than in July 2022. Compulsory liquidations have increased from historical lows during the pandemic, partly as a result of an increase in winding-up petitions presented by HMRC.

There were 1,336 creditors’ voluntary liquidations (CVLs), down 17% year on year. Administrations and company voluntary arrangements rose, though.

David Hudson, restructuring advisory partner at the business advisory firm FRP, said:

Insolvency levels will continue to rise throughout 2023 as higher interest rates, inflation and weaker consumer confidence feed through.

Encouragingly, we’re seeing businesses reinforcing their positions against future headwinds. For example, in construction, firms are increasingly building escalators into contracts that allow them to increase prices if certain input costs go up. But steps like these only do so much to recover losses that have already been incurred and with property prices in decline this will compound the issue. In the face of what are still punishing trading conditions, businesses that have been under sustained pressure for some time now will find they can go no further.

The poor weather that’s drenched the UK this summer may also mean a greater risk of insolvency in the hospitality, tourism and retail sectors over the next eight to 10 months.

These are businesses that often rely on a busy summer trading period to get them through the quieter winter period. With UK travel agencies already reporting a rise in domestic tourists booking trips abroad to flee the rain, this weather could mean a washout when it comes to their revenue and profit for this year. Any businesses that are missing trading targets now should be forecasting over the long-term to see where future pressure points lie and seeking help so these issues don’t become catastrophic.

On the markets, the FTSE 100 index has fallen 1.2%, or 90 points, to 7,416 while sterling strengthened after the jump in UK basic pay growth, which analysts said helps cement an interest rate hike in September.

The pound rose 0.2% against the dollar earlier and is now up a smidgen at $1.2689.

Germany’s main share index, the Dax, has lost 117 points or 0.7% to 15,786 while France’s CAC is off 0.9%, or 68 points, at 7,280. Only Italy’s FTSE MIB is in the black, rising 0.57%, or 160 points,, to 8,435.

Brent crude, the global oil benchmark, is trading 0.3% lower at $85.91 a barrel.

Russia’s rouble has staged a small recovery to 97.4 per dollar but pared gains, after the country’s central bank hiked rates by 3.5 percentage points to 12%, citing high inflation.

Yesterday, the currency weakened dramatically to its lowest level since March 2022, hitting 102 per dollar at one stage, dragged down by the impact of western sanctions on Russia’s trade position, with imports climbing, and soaring military spending.

Marks and Spencer shares jumped nearly 8% after it said it expects increased profits for the current financial year, upgrading its outlook after growing its market share in food, clothing and homeware.

In an unexpected update to the City, the high street retailer told investors its interim results, due to be published in November, would show “a significant improvement” against previous expectations.

M&S said that in the first 19 weeks of the year like-for-like food sales grew 11% and clothing and homeware sales rose by over 6%.

The firm saw considerable growth sales growth in its holiday range between April and June, with a 46% increase in sales of beachwear and 22% rise in sales of linen.

It said that the company’s operating margin has continued to be “robust” and that it was making “good progress” on its programme to reshape M&S.

In a statement, the retailer said:

There remain considerable uncertainties about the economic outlook, and there is a risk that the consumer market will tighten as the year progresses.

Nevertheless, we now expect the outcome for the year to show profit growth on 2022-23, and the interim results to show a significant improvement against previous expectations.

The boost in sales comes despite the cost of living crisis squeezing consumer incomes and just weeks after clothing retailer Next upgraded its profit forecast after shoppers flocked to the summer sales.

The Sun’s business editor Ashley Armstrong tweeted:

Phillip Inman

Here is our full story on the UK labour market data.

The Bank of England is under renewed pressure to raise interest rates next month after wages jumped more than expected in June, boosted by a one-off payment to NHS workers.

A rise in borrowing costs is likely even though the latest figures for the labour market also showed employers had begun to shed workers in response to a slowdown in economic activity.

Total pay, including bonuses, rose by 8.2% a year in the three months to June, the Office for National Statistics reported, stronger than the 7.3% analysts expected.

Regular pay, which does not include bonus payments, rose by 7.8% in the quarter, the highest regular annual growth rate since comparable records began in 2001, up from 7.5% in March-May.

The statement doesn’t mention the rouble, which dropped to its lowest level in nearly 17 months yesterday. The Russian currency has been boosted by the central bank’s move.

It now takes 95 roubles to buy a dollar, whereas yesterday the exchange rate was at 102 roubles per dollar at one stage.

The Bank of Russia has raised its key rate to 12% from 8.5%. It explained in a statement on its website:

The decision is aimed at limiting price stability risks.

Inflationary pressure is building up. As of 7 August, the annual rate of inflation rose to 4.4% while current price growth rates continue to increase. Over the last three months current price growth amounted to 7.6% on average in annualised terms on a seasonally adjusted basis. The same core inflation measure went up to 7.1%.

Steady growth in domestic demand surpassing the capacity to expand output amplifies the underlying inflationary pressure and has impact on the ruble’s exchange rate dynamics through elevated demand for imports. Consequently, the pass-through of the ruble’s depreciation to prices is gaining momentum and inflation expectations are on the rise.

Hereinafter, with current price growth rates staying at the attained levels the risk of inflation’s deviation upwards from the target in 2024 is substantial. The Bank of Russia’s decision is aimed at shaping monetary conditions and overall domestic demand dynamics necessary to bring inflation back to 4% in 2024 and stabilise it close to 4% further on.

Moving forward, in its key rate decision-making the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as the risks posed by domestic and external conditions and the reaction of financial markets. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will return to 4% in 2024.

UK grocery price inflation slowed further over the past month as some staples like milk and sunflower oil have become cheaper at supermarkets.

However, prices are still up year-on-year “across every supermarket shelf,” analysts at Kantar said.

They reported price inflation across supermarkets and other food stores at 12.7% for the four weeks to 6 August, down from 14.9% the previous month. It is the fifth month of declines since the figure peaked at 17.5% in March.

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

The latest slowdown in price rises is the second sharpest monthly fall since we started monitoring grocery inflation in this way back in 2008.

Prices are still up year-on-year across every supermarket shelf, but consumers will have been relieved to see the cost of some staple goods starting to edge down compared with earlier in 2023.

Shoppers paid £1.50 for four pints of milk last month, down from £1.69 in March, while the average cost of a litre of sunflower oil is now £2.19, 22p less than in the spring.

The data, based on the shopping habits of 30,000 households across the UK, also showed strong demand for own-label products from cash-conscious customers, with sales up by 9.7% for the quarter.

Overall take-home grocery sales increased by 6.5% over the month, Kantar said, down from 10.4% growth the month before.

It explained that with the recent wet weather, shoppers turned away from traditional summer favourites, while soup sales grew 16% as people looked for warming meals.

McKevitt added:

It was a better month for Barbie than barbecues this July as the rain put a spanner in the works for many consumers’ outdoor plans – a stark comparison to last year when we experienced the hottest day on record.

Volume sales of ice creams were down by 30%, while soft drinks sales were nearly a fifth lower than 12 months ago.

Sales at Tesco and Sainsbury’s grew strongly over the month, rising by 9.5% and 9.3% respectively. But Aldi was the fastest growing retailer for the fourth month in a row, with its sales jumping by more than a fifth year-on-year.

The UK labour market data supports the case for one more rate hike from the Bank of England, said Ruth Gregory, deputy chief UK economist at Capital Economics. She explained:

The fall in employment in the three months to June and further rise in the unemployment rate will be welcomed by the Bank of England as a sign labour market conditions are cooling. But with wage growth still accelerating, this supports our view that the Bank of England will deliver one more 25 basis point rate hike before it brings its tightening cycle to a close.

The 66,000 fall in employment in the three months to June (consensus forecast +75,000) will be welcomed by the Bank of England as a sign that the tight labour market is easing.

Admittedly, the cooling in labour market conditions didn’t feed through into an easing in wage growth.

The Bank of England will be concerned about the fact that, the single-month annual growth rate in one of its preferred gauges of inflation persistence, regular private sector wage growth, rose from 8.1% to 8.3%. And the three-month rate was 8.2%, far above the 7.6% the Bank of England had predicted in August.

This suggests the Bank of England has a bit more work to do and supports our view that the Bank will raise rates from 5.25% to 5.50% in September, although a lot will depend on the next labour market release and two CPI inflation data releases.

Good morning, and welcome to our live coverage of business, economics and financial markets.

In the UK, basic pay growth has jumped to the highest rate since records began while the unemployment rate rose unexpectedly.

Average weekly earnings excluding bonuses rose 7.8% in the three months to June, the highest since records began in 2001, according to the Office for National Statistics. This will add to the Bank of England’s concerns about high inflation.

Total earnings rose 8.2%, higher than the 7.3% growth forecast by economists, boosted by NHS one-off bonus payments made in June.

In another surprise, the unemployment rate increased from 4% to 4.2%, the highest since October 2021. This was driven by people who have been unemployed for up to 6 months.

The number of employed people declined by 66,000 between April and June, while vacancies were also down. Between May and July, the number of vacancies fell by 66,000 on the quarter to 1.02m.

In June alone, employment fell by a huge 567,000, reversing the 184,000 single-month leap in April.

There were 160,000 working days lost because of labour disputes in June, more than half in the health and social work sector.

The Russian rouble is rising ahead of an extraordinary meeting by Russia’s central bank. It is expected to raise interest rates to prop up the currency, which fell to its weakest level in almost 17 months yesterday.

It took 102 roubles to buy one US dollar at one stage, a nearly 2% increase, according to Refinitiv data. That was the weakest level since March 2022. This morning, the rouble has risen to 96.40 per dollar.

The decision from the Bank of Russia is expected at 10.30am Moscow time (8.30am BST). Its key rate is currently at 8.5%.

President Vladimir Putin’s economic adviser Maxim Oreshkin said yesterday:

The central bank has all the tools to normalise the situation in the near future.

It is in the interests of the Russian economy to have a strong rouble.

China’s central bank unexpectedly cut its key policy rates for the second time in three months, as the authorities seek to boost a sputtering economic recovery.

But some analysts said the cut to one-year medium-term lending facility rates by 15bp to 2.50% was not enough, and China could follow up with a reduction in its lending benchmark loan prime rate next week.

They said falling credit growth and growing deflation risks in July prompted the move. Some housing developers are struggling and risk defaulting on their debts and a private wealth manager missed payments, also raising questions over the health of the economy. Yesterday, China’s biggest private property developer, Country Garden, said it would suspend trading in some bonds.

The Agenda

• 8am UK Kantar grocery price inflation

• 10am BST: Eurozone ZEW Economic sentiment index for August

• 10am BST: Germany ZEW Economic sentiment index for August

• 1.30pm BST: Canada inflation for July (forecast: 3%)

• 1.30pm BST: US Retail sales for July (forecast: 0.4%)