Concern for Bank of England as real earnings growth at highest rate since 2021
A weaker than expected easing in the pace of pay rises means real earnings growth, when inflation is taken into account, is at its highest rate in almost two and a half years, according to the latest official figures.
The Office for National Statistics (ONS) said average regular pay, excluding bonuses, stood at 6% in the three months to February compared with a year earlier.
In real terms, when the rate of inflation is reflected, pay growth by the same measure was 2.4% – its highest level since July 2021, the report said.
The base figure was above the 5.8% expected by economists and only down from the 6.1% sum registered the previous month.
There was no shift in the data which included bonuses on the same rolling three-month basis.
The figures, while welcome on the face of it for struggling households, could make for worrying reading at the Bank of England, which is assessing the timing for a long-awaited interest rate cut amid its battle against inflation.
It has wanted to see the pace of wage growth ease significantly for fear that high earnings risk stoking demand, and therefore prices, across the economy.
The wider ONS figures showed a rise in the UK’s unemployment rate to 4.2% from 3.9% though the statistics body continued to place a big health warning on the number due to continuing work on making the employment data more reliable.
ONS director of economic statistics, Liz McKeown, said: “Recent trends of falling vacancy numbers and slowing earnings growth have continued this month albeit at a reduced pace.
“But with the rate of inflation also slowing, real earnings growth has increased and is now at its highest rate in nearly two and a half years.
“At the same time, we are now seeing tentative signs that the jobs market is beginning to cool, with both a fall in the headline employment rate from our survey and a drop in the total number of people on payrolls from HMRC data.”
The Bank’s medicine of interest rate hikes since December 2021 to counter inflation have inflicted higher borrowing costs on businesses and consumers alike, exacerbating the financial pain from the very cost of living crisis it is trying to eradicate.
The latest inflation figures, due on Wednesday, are also expected to show further progress towards the Bank’s goals and the prospect of a rate cut from the current 5.25% level.
Economists polled by Reuters expect the consumer prices index (CPI) measure of inflation slowed to an annual rate of 3.1% in March.
That is down from the current 3.4%.
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The latest data does not mean that overall prices are falling but rising at a slower pace than they were. Sky’s Ed Conway has more.
Energy price shifts are widely tipped to take CPI below the Bank’s 2% target soon after but policymakers have flagged concerns that elements of inflation will push back up later in the year.
It is a reason why economists and financial markets are split over the timing for a possible rate cut.
Some still see June while others predict the Bank will wait until August as so-called upside risks, such as through oil price spikes caused by the instability in the Middle East, are monitored.
LSEG platform data showed a shift in bets away from June in the wake of the ONS data.
The Bank of England’s action to tame price growth was the major factor behind the economy slipping into recession in the second half of last year.
Data since then has shown a return to meagre growth.
Paul Dales, chief UK Economist at Capital Economics, said of the crucial pay data: “Weaker activity suggests wage growth will ease more rapidly before long.
“The more marked weakening in the labour market in February than expected suggests that wage growth will continue to slow over the next six months even though the pace of decline appears to have eased.”
London City Airport will on Thursday name its first permanent female chief executive as it targets approval of an expansion plan that would create nearly 1,500 jobs.
Sky News understands that the Docklands airport has told staff that Alison FitzGerald, who has been co-CEO since January alongside finance chief Wilma Allan, has landed the role.
A woman wearing a face mask walks by London City Airport, which suspended its operations during the pandemic
She replaces Robert Sinclair, who left in January after six years to become boss of the High Speed 1 rail link.
The airport is owned by a consortium of Canadian pension funds and Kuwait’s sovereign wealth fund, which have backed a plan to increase its annual passenger traffic from about 6.5m to 9m.
It is appealing against Newham Council’s rejection of a planning application that would see it extend operating hours at the site, which is popular with City commuters.
The airport’s proposals include no increase in the annual number of flights and, in what it claims is a first for a UK airport, a commitment that only cleaner, quieter, new generation aircraft will be allowed to fly in any extended periods.
The runway at London City Airport
The appeal is being reviewed by the Independent Planning Inspector.
Its change of leadership makes London City the second of the capital’s airports to name a new CEO in quick succession, following the arrival at Heathrow of Thomas Woldbye last year.
“London City delivers one of the best passenger experiences in the UK and I’m committed to building on this success even further,” Ms FitzGerald said.
Representatives of Thames Water’s multinational syndicate of shareholders are poised to quit as directors of its corporate entities after refusing to inject the billions of pounds of funding required to bail it out.
Sky News has learnt that a number of board members at companies connected to Kemble Water Finance, Thames’s parent, are expected to resign in the coming days.
City sources described the move as “the logical next step” after the owners of Britain’s biggest water utility said they would not commit more than £3bn to help upgrade its ageing infrastructure and shore up its debt-laden balance sheet.
A default on part of Thames Water‘s holding company debts last month has raised the prospect that the company is heading towards special administration, a form of insolvency that would effectively leave the government liable for managing a utility firm which serves nearly a quarter of Britain’s population.
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Thames Water under threat
Thames Water is owned by a group of sovereign wealth funds and pension funds from countries including Abu Dhabi, Australia, Britain, Canada and China.
A number of the investors are represented on boards which sit at various points in the group’s labyrinthine capital structure.
It was unclear on Wednesday whether Michael McNicholas, a representative of the giant Canadian pension fund Omers and who sits on the board of Thames Water Utilities Limited, was among those in the process of stepping down.
Read more:
Directors hold crunch talks over utility’s future
Even bigger surge in bills proposed under new plans
Along with the rest of the privately owned water industry, Thames Water faces a crucial moment next month when Ofwat, the industry regulator, publishes its draft determination on companies’ five-year business plans.
The draft rulings will be subject to negotiation before final versions are published in December.
Thames Water and a spokesman for Kemble declined to comment.
Business
Royal Mail ‘minded’ to accept £3.5bn takeover proposal by Czech billionaire Daniel Kretinsky
The owner of Royal Mail has said it is “minded” to accept a revised takeover bid by Czech billionaire Daniel Kretinsky.
The latest offer from Mr Kretinsky’s investment firm EP Group values the Royal Mail parent company International Distribution Services (IDS) at £3.5bn.
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Mr Kretinsky’s firm already owns most of IDS as a 27.6% shareholder but wishes to buy the remaining shares.
An earlier offer of £3.20 a share had been rejected last month for being too low.
But now he has offered to pay £3.60 for each share. The day before the original offer was made a share in IDS cost £2.14.
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An extra shareholder pay out of 8 pence a share has been offered by EP Group, if the deal closes, as has a 2 pence per share payment to every stakeholder, expected to be paid in September.
It would bring the total value of an IDS share to 73% more than it cost before the prospect of a buyout was raised.
‘Good value’
“Having considered the proposal, the board has indicated to EP Group that it would be minded to recommend an offer to IDS shareholders”, the IDS board said.
The price is “fair” and reflects the value of current growth plans, the IDS chairman said.
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Royal Mail could be allowed to deliver letters just three days per week, under a series of options outlined by the industry regulator.
Consideration was given by the board to the national significance of Royal Mail as the operator of the postal network.
“The board is particularly mindful of Royal Mail’s unique heritage and responsibilities as the designated universal service provider in the United Kingdom and a key part of national infrastructure”, it said.
In assessing the proposal, the board has also been very mindful of the impact on Royal Mail and GLS and their respective stakeholders and employees, as well as broader public interest factors”.
EP Group has until 29 May to advance or withdraw its takeover bid.
Who is Daniel Kretinsky?
There has already been scrutiny of Mr Kretinsky’s part ownership in the postal company but a government national security concerns review into his investment led to no intervention.
He also owns parts of West Ham Football Club and Sainsbury’s.
EP Group, which he controls, has financial interests in energy, logistics, and food retail.
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