UK wage growth slows and vacancies drop; Unilever facing ‘greenwashing’ probe

Introduction: UK wage growth slows

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

UK wage growth has slowed, and vacancies have dropped again, as Britain’s labour market cools in the face of a weak economy and high interest rates.

New data just released by the Office for National Statistics show that average basic pay (excluding bonuses) grew by 7.3% per year in the August-October quarter. That’s down from 7.8% growth a month ago.

Including bonuses, pay growth was slightly slower – up 7.2% year-on-year. Again, that’s quite a slowdown on the 8% total pay growth a month ago, and a larger fall than expected.

Wages are still rising faster than inflation, though. In real terms, both basic and total pay grew by 1.2% – once you account for rising prices.

But today’s data suggests the jump in nominal wage growth earlier this year is fading, just as households face the Christmas spending squeeze.

This may cheer the Bank of England as it prepares to set interest rates on Thursday, as it suggests that high borrowing costs are cooling the economy, and preventing a wage-price spiral breaking out.

Annual average regular earnings growth for the public sector was 6.9% in August to October 2023, which is one of the highest rates since the ONS’s data began in 2001.

Annual average regular earnings growth for the private sector was 7.3%.

The ONS also reports that vacancies in the UK fell by 45,000 on the quarter to 949,000.

This is the 17th consecutive fall in a row – the longest run on record, but it still leaves vacancies above their pre-Covid-19 levels.

The ONS also reports that the number of payrolled employees in the UK for November is estimated to have dropped slightly, down 13,000 to 30.2 million.

And due to problems with the ONS’s data-gathering, it is continuing to produce estimates for unemployment and employment rates.

They show:

the UK employment rate (for those aged 16 to 64 years) was largely unchanged on the quarter at 75.7%
the UK unemployment rate (for those aged 16 years and over) was largely unchanged on the quarter at 4.2%
the UK economic inactivity rate (for those aged 16 to 64 years) was largely unchanged on the quarter at 20.9%

Also coming up today

The final US inflation report of 2023 is due this afternoon, which may cement – or undermine – market expectations for interest rate cuts in 2024.

Annual US inflation is expected to tick down to 3.1% from 3.2%, while core inflation is expected to remain unchanged at 4.0%.

Tony Sycamore, market analyst at IG, says:

Should core CPI come in at or above 4.2% YoY, equity traders will likely rush to hit the sell button first and ask questions later.

Should core CPI print at 3.9% or less, it would be the green light for equity markets to extend gains into year-end.

The agenda

7am GMT: UK labour market report
10am GMT: ZEW survey of German and eurozone economic sentiment
11am GMT: NFIB index of US small business optimism
1.30pm GMT: US inflation report for November

Key events

FTSE 100 hits eight-week high

Stocks in London have hit their highest level in eight weeks, as investors brace for the latest US inflation data due later today.

The FTSE 100 index has climbed by 57 points, or 0.77%, this morning to 7,603 points.

That’s the blue-chip index’s highest level since 18 October, and comes after Wall Street closed at its highest level of the year last night.

Investors are calculating that if this morning’s drop in UK wage growth continues, the Bank of England could start to cut rates sooner rather than later in 2024, says Danni Hewson, head of financial analysis at AJ Bell.

She adds that the US inflation report will give clues as to how America’s central bank, the Federal Reserve, might act.

“US data later today will be watched closely by investors with expectations for the annual pace of inflation to slow from 3.2% to 3.1%. Core inflation is expected to remain steady at 4%, twice the level desired by the Federal Reserve over the long term.

Core inflation excludes energy and food costs and is expected to show a small increase from 0.2% in October to 0.3% in November, somewhat muddying the water for a narrative desired by investors that shows inflation gradually easing.

Max Mosley, senior economist at NIESR, predicts wage growth “will remain elevated in the upcoming period,” saying:

Today’s data show that average weekly earnings, excluding bonuses, rose by 7.3 per cent in August to October 2023 and by 7.2 per cent with bonuses, which is affected by one-off civil service bonus payments.

While this remains high and well above historical averages, it has only recently started to outpace inflation.

Taking price rises [based on the CPIH inflation measure] into account, total regular pay grew by 1.4 per cent and by 1.3 per cent including bonuses over the same period, meaning that workers have only recently seen their pay catch up with prices after a prolonged period of falling real wages.

Furthermore, the experimental labour market data suggest that the unemployment rate remained unchanged at 4.2 per cent, while the number of job vacancies fell by 45,000 in the three months to November. Overall, these figures indicate that labour market continues to loosen at a slow pace and wage growth will remain elevated in the upcoming period.”

Full story: UK pay growth drops sharply as job vacancies fall

Pay growth in the UK is falling sharply amid signs that jobs are becoming harder to find in a stagnant economy, our economics editor Larry Elliott reports.

In its latest health check on the labour market, the Office for National Statistics said growth in total average earnings had dropped from 8% to 7.2% in the three months to October – a much bigger drop than the financial markets had been predicting.

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Meanwhile, the number of job vacancies continued to fall, declining by 45,000 to 949,000 at a time when growth stalled.

The level at which pay is increasing is being closely monitored by Bank of England policymakers to gauge inflationary pressure in the economy and the latest figures will ease fears at Threadneedle Street of a wage-price spiral.

More here.

Investors are anticipating that the Bank of England will make its first interest rate cut by next June, from 5.25% to 5%.

The BoE is widely expected to leave rates on hold on Thursday, at its final scheduled meeting of the year.

Chris Beauchamp, chief market analyst at IG Group, says:

UK workers continue to benefit from above-inflation pay rises, but the slowdown in wage growth might also give hope that the BoE can think more positively about cuts in rates next year, should inflation continue to come down.

While there is almost no chance of them acknowledging the possibility on Thursday, maybe today’s wage figures will allow them to think about entertaining it at some point.

Hargreaves Lansdown and AJ Bell shares slide as regulator demands ‘double dipping’ clampdown

Another regulator is also baring its teeth this morning.

The Financial Conduct Authority (FCA) has issued a warning to investment platforms over the practice of charging to hold people’s cash and then also accruing interest on it.

Rising interest rates have made this practice, known as “double dipping”, more lucrative – and the FCA has told firms to cease it.

The watchdog has surveyed 42 firms and found the majority retain some of the interest earned on these cash balances.

Sheldon Mills, executive director of consumers and competition at the FCA said:

“Rising rates mean greater returns on cash. Investment platforms and SIPP operators need now to ensure how much of the interest they retain and, for those who are double dipping, how much they’re charging customers holding cash, results in fair value. If they cannot make that case, they need to make changes.

“If they don’t, we’ll intervene.”

Shares in Hargreaves Lansdown have dropped by 8.6% in early trading, while AJ Bell are down over 9%.

UK regulators investigating Unilever’s green claims

Consumer goods giant Unilever is facing scrutiny over the environmental claims it makes about some of its household products, such as cleaning products and toiletries.

The Competition and Markets Authority has announced it will examine the ‘green’ claims made by Unilever to make sure shoppers aren’t being misled

The CMA says it is concened that Unilever may be overstating how green certain products are through the use of vague and broad claims, unclear statements around recyclability, and ‘natural’ looking images and logos.

Unilever’s brands include Persil washing powder, Domestos bleach and CIF cleaning products.

Sarah Cardell, chief executive of the CMA, said:

Essentials like detergent, kitchen spray, and toiletries are the kinds of items you put in your supermarket basket every time you shop. More and more people are trying to do their bit to help protect the environment, but we’re worried many are being misled by so-called ‘green’ products that aren’t what they seem.

So far, the evidence we’ve seen has raised concerns about how Unilever presents certain products as environmentally friendly. We’ll be drilling down into these claims to see if they measure up. If we find they’re greenwashing, we’ll take action to make sure shoppers are protected.

Ofcom proposes ban on inflation-linked mid-contract price rises

In other news… Mobile phone providers could be banned from linking mid-contract price rises to runaway inflation figures under new proposals from the communications regulator.

In a win for consumers, Ofcom said this morning that phone, broadband and pay-TV companies must tell customers upfront and in “pounds and pence” about any mid-contract price rises.

The regulator is now proposing a ban on inflation-linked mid-contract price rises, warning that the practice risks undermining competition.

It is concerned that inflation-linked mid-contract price rises do not provide enough clarity about the prices people will pay, and hamper their ability to shop around for a better deal.

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Melanie Dawes, the Ofcom chief executive, said:

“At a time when household finances are under serious strain, customers need prices to be crystal clear. But most people are left confused by the sheer complexity and unpredictability of inflation-linked price rise terms written into their contract, which undermines customers’ ability to shop around.

Here’s the full story:

As we reported in June, the UK’s largest mobile and broadband companies have been accused of fuelling “greedflation” after they pushed through the biggest round of price hikes for more than 30 years, linked to rising prices.

Union: The fight for better pay is not over

Unions are concerned that there’s “no festive cheer in latest earnings data”, given the slowdown in pay growth.

Unite the union’s general secretary, Sharon Graham, said:

“Although collective bargaining is delivering higher wagers for our workers – with Unite securing hundreds of millions through negotiations – these improvements are being undermined by high inflation rates.

“Moreover, it’s abhorrent that millions of workers are forced to stretch their payslips to simply live, while big corporations continue to fill their coffers. The battle to push up pay is therefore far from over, and we will carry on fighting to secure better pay, jobs and conditions for workers throughout the country.”

TUC general secretary Paul Nowak says the UK economy remains in “dire straights”.

“Pay growth slowed in October with real wages still worth less than in 2008.

“And unemployment is 200,000 higher than a year ago with vacancies falling for the seventeenth consecutive period.

Alexandra Hall-Chen, principal policy advisor for employment at the Institute of Directors, says:

‘Although today’s data shows a slight decline in job vacancies, demand for labour remains strong.

Our own data shows that skills and labour shortages are consistently cited by business leaders as a significant pain point. These shortages drive inflation and inhibit business’ ability to grow.

In light of the government’s recently announced measures to reduce economic migration to the UK, measures to increase domestic labour supply are urgently needed to prevent these shortages from becoming more acute.’

Parliament will vote on the government’s safety of Rwanda bill this evening. Rishi Sunak is trying to persuade Conservative MPs to back the legislation, which has been criticised by both wings of the party….

Minister for Employment, Jo Churchill MP, says:

‘This year the number of employees on payroll reached a record high in the UK Labour Market – up over 300,000 on the year’

‘Our transformational Back to Work plan with £2.5 billion will help thousands more people access the wide ranging benefits of work and boost our economy’.

That payroll total is estimated to have dropped a little in November, down 13,000, to 30.2 million – but this data is often revised by the ONS.

Liz Kendall MP, Labour’s Shadow Work and Pensions Secretary, says:

“Today’s figures once again lay bare 13 years of Conservative economic mismanagement that is failing Britain.

We are the only G7 country with an employment rate that hasn’t returned to pre-pandemic levels and a record number of people are now locked out of work due to long term sickness. It’s bad for them, it’s bad for business and it’s bad for the taxpayer too.

Labour’s plan to get Britain working will tackle the root causes of economic inactivity by driving down NHS waiting lists, reforming social security, making work pay and supporting people into good jobs across every part of the country.”

Pay is growing fastest in the finance and business services sector, the ONS reports, where it rose by 8.3% in the August-October quarter.

That was followed by the manufacturing sector, where pay is up 7.4% year-on-year.

Bank of England expected to hold rates on Thursday

Richard Carter, head of fixed interest research at Quilter, says the Bank of England will want to see further cooling in wage growth before it starts to cut interest rates:

“This dip in pay suggests the Bank of England’s previous interest rate decisions are beginning to have the desired effect and it will likely feel vindicated to continue to hold rates higher for longer as a result.

Though today’s figures suggest another step has been taken in the right direction, the Bank will be keen to see a significant slowdown in wage growth before it begins to contemplate the possibility of cutting interest rates.

Today’s data suggests a looser labour market is starting to translate into slower pay growth, says Jake Finney, economist at PwC UK.

Finney predicts that this will encourage the Bank of England to leave interest rates on hold at their current 15-year high of 5.25%, saying:

“Despite slower pay growth, inflation-adjusted pay is still growing on a year-on-year basis. This is because headline inflation is falling back at a faster rate. Our modelling indicates that the worst of the living standards squeeze is over for the average household. However mortgaged households will continue to face the squeeze from higher interest payments as fixed-rate mortgages face renewal.

“Signs of labour market cooling will provide some reassurance to the Bank of England Monetary Policy Committee, who meet again on Thursday. With no major surprises in the economic data over the past four weeks, rates are likely to remain unchanged. Policymakers are expected to stress that rates will need to remain in restrictive territory for some time.”

The Chancellor of the Exchequer, Jeremy Hunt, has issued a brief statement outlining the government’s efforts to support employment:

“It’s positive to see inflation continue to fall and real wages growing.

At the Autumn Statement, I announced an ambitious set of measures to get more people into work and boost economic growth. This includes a significant expansion of health support and an over £9bn per year tax cut for employees and the self-employed, worth over £450 for the average worker,”.

ONS: some signs that wage pressure might be easing overall.

ONS director of economic statistics Darren Morgan says there are signs that the pressure lifting UK earnings may be easing:

“Our labour market figures continue to show a largely unchanged picture, with the proportions of people who are employed, unemployed or who are neither working nor looking for a job all little changed on the previous quarter.

“Job vacancies fell again. This is now the longest period of decline on record, longer than in the immediate aftermath of the 2008 downturn. Nevertheless, the number of vacancies still remains well above its pre-pandemic level.

“While annual growth in earnings remains high in cash terms, there are some signs that wage pressure might be easing overall. However, as inflation has been falling more quickly, pay continues to grow in real terms.”