- FTSE 100 opens lower after employers continue to offer inflation busting wage deals.
- Pay growth is slowing, but it’s unlikely to be fast enough to satisfy wary Bank of England policymakers.
- BoE governor Andrew Bailey points to signs of slightly stronger growth in 2024.
- Brent crude rises above $82 as tensions rise again in the Middle East.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
’Wage growth in the UK is cooling but may still be hot to handle for the Bank of England policymakers who may keep their distance from rate cuts for a little bit longer. The FTSE 100 has opened in the red, as investors assess there is still considerable way to go before stubborn inflation has been tamed. Inflation busting pay rises are still the norm, and there is concern that if staff costs stay high, businesses will be more reluctant to stem price increases. There were buds of hope of an interest rate cut in May, but they may now be pruned back, depending what Wednesday’s CPI data reveals about broader price pressures.
Regular wages excluding bonuses went up 6.2% in the three months to December, it may have been the slowest growth in fourteen months, but the expectations were closer to 6%. Shortages of staff across the retail and hospitality trade are likely to have prompted average pay growth of 7.2% especially during the busier run up to Christmas period.
Vacancies are falling back, but other data from the CIPD out yesterday indicated that one in five employers say they still expect to have significant problems filling gaps in workforces over the next 12 months. GDP data out on Thursday is expected to show the economy dipped into a technical recession at the end of last year, but even so it’s likely to have been a very mild one. Bank of Engand governor Andrew Bailey in his speech in Loughborough on Monday nodded to a slightly stronger growth story unfolding this year. However, it’s clear it’s going to be a hard slog before there’s a meaningful expansion in economic activity, given low productivity, lack of investment and the numbers of long-term sick hitting record levels, leaving them out of potential employment.
Oil prices have crept back up, with Brent Crude hovering above $82 a barrel as tensions ratchet up again in the Middle East after attacks on Rafah and the rejection of a ceasefire offer. But there are still hopes of a breakthrough as peace talks resume in Cairo. Oil prices are still around 12% lower than levels in September. Hopes of early Spring interest rate cuts in the US been scaled back and more restrictive monetary policy is seen as a continuing drag on economic growth and energy demand.”
