Regular pay lagging behind inflation as UK unemployment falls to lowest since 1974 – business live

The Kremlin has said it would be “outright theft” for the Group of Seven economic powers and European Union to enable Ukraine to use Russia’s frozen reserves, Reuters reports.

The Kremin called such a move illegal and one that would demand an appropriate response.

German finance minister Christian Lindner told four European newspapers that he was open to the idea of seizing Russian state assets to finance the reconstruction of Ukraine and that proposals to that effect were already being discussed among the G7 and in the EU.

Roughly $300bn of Russian foreign exchange reserves were frozen when the EU, the US and their allies imposed sanctions on the country’s central bank after the Ukraine war began.

Last week Josep Borrell, the EU’s high representative for foreign policy, said EU capitals should consider seizing those frozen reserves to cover the costs of rebuilding Ukraine after the war.

The cost of rebuilding Ukraine could surpass half a trillion dollars. A leaked EU reconstruction plan showed that Ukraine could receive loans, grants and possibly the proceeds of seized Russian oligarch property to help pay the cost.

In the plan drafted in Brussels, the European Commission states that the Ukrainian government will have to take out loans to pay for rebuilding its war-ravaged country. Non-repayable grants from EU member states would provide another tranche of the funds needed to rebuild destroyed homes, schools, roads, railways, airports and bridges.

More here, by my colleague Jennifer Rankin:

Inflation could force schools to cut meal portions or quality

Julia Kollewe

Soaring food inflation could force schools to choose between offering smaller portions at lunchtime and using cheaper ingredients, according to the boss of one of the UK’s largest food wholesalers.

Andrew Selley, the chief executive of Bidfood, a food distribution business with an annual turnover of nearly £2bn, said schools would be facing tough decisions unless the government increased funding for free school meals.

Selley said shortages caused by the war in Ukraine had led to a doubling in the price of sunflower oil compared with a year ago, with knock-on effects on other vegetable oils.

Baked goods are 20% to 30% dearer, and the increase in wheat prices will also feed through into pasta, egg and chicken prices, as wheat is used as chicken feed, he said.

Selley said the amount of money provided by the government for free school meals had gone up by only 1.7% over the past 10 years, which was well behind food inflation even before the sharp increases seen in recent months. More details here.

Euro zone economic growth was stronger than previously expected in the first quarter, according to revised data released this morning.

The European Union’s statistics office Eurostat said eurozone GDP rose by 0.3% in January-March. That’s better than the 0.2% first estimated, and matches the growth at the end of 2021.

That growth rate is still slower than the UK, where GDP rose by 0.8% despite a small fall in March, but better than the US where the economy shrank by 0.4% in Q1.

European growth in the first quarter was hit by Russian invasion of Ukraine on February 24, which led to a surge in energy prices, disrupted supply chains, and hurt business and consumer confidence.

But eurozone employment continued to rise in January-March — up 0.5% quarter on quarter and 2.6% year-on-year.

Yesterday, the EC cut its growth forecast for the euro area, due to the impact of the Ukraine war.

Full story: UK pay hit by inflation but unemployment falls to 48-year low

Phillip Inman

Soaring bonuses for City bankers and high signing-on fees for construction and IT professionals pushed Britons’ average annual pay up by 7% in March, but most workers suffered a fifth consecutive month of falling living standards.

Without bonus payments, workers were paid an average 4.2% wage increase in the three months to March, well below the 7% inflation rate recorded in the same month, according to the Office for National Statistics.

Analysts said the UK was suffering a chronic shortage of workers after about 500,000 quit the labour market during the Covid-19 pandemic and many continental European workers left Britain following Brexit. The unemployment rate fell to 3.7%, the lowest since 1974.

Paul Dales, the chief City economist at the consultancy Capital Economics, said:

“Anecdotal evidence suggests that businesses have been raising bonuses to maintain staff, so it is probably another sign of how the tight labour market is feeding into faster wage growth.”

Illustrating the widening gap between the number of staff employers need and those seeking work or to move job, vacancies rose to a record of 1,295,000 in the three months between February and April – an increase of 33,700 from the previous quarter and a jump of almost 500,000 since March 2020.

Here’s the full story:

In the financial markets, sterling is strengthening against major currencies after UK unemployment rate fell unexpectedly to a 48-year low of 3.7%.

The pound is up 1.5 cents against the US dollar to $1.247, its highest level since tumbling almost two weeks ago when the Bank of England slashed its growth forecasts.

Sterling is up a cent against the euro too, at €1.19.

Ricardo Evangelista, senior analyst at ActivTrades, says traders are expecting further UK interest rate rises, with inflation forecast to have hit 9% in April.

Sterling is benefiting from surprisingly positive data released this Tuesday morning, with unemployment and wage figures both surpassing expectations, painting a more positive picture for the British economy than had been expected.

Against such background, expectations have risen for the Bank of England to step-up the pace of monetary policy tightening; with inflation data being released tomorrow predicted to surpass 9%, officials at the BoE should have little choice but to continue to rise interest rates, creating scope for further pound gains.

Elon Musk’s deal to buy Twitter is looking increasingly troubled.

The billionaire has tweeted that the deal, agreed last month, ‘cannot go forward’ unless company can show that less than 5% of accounts are fake or spam.

Yesterday, Musk suggested that he could seek to pay a lower price for Twitter, as he expressed further concerns about the presence of fake accounts on the platform.

The Tesla CEO said reducing his agreed $54.20 per share offer wouldn’t be “out of the question”, days after putting the $44bn ($36bn) deal “on hold” after he queried the number of spam accounts on Twitter.

Musk told the All-In Summit in Miami that the deal going through depended on Twitter’s response to his concerns about fake accounts.

“It really depends on a lot of factors here,” he said in comments reported by the Financial Times.

“I’m still waiting for some sort of logical explanation for the number of sort of fake or spam accounts on Twitter. And Twitter is refusing to tell us. This seems like a strange thing.”

Musk also failed to distinguish himself with an exchange with Twitter CEO Parag Agrawal over spam on the platform:

Twitter’s share price fell 8% yesterday, to $37.39, back to levels before Musk revealed he has build a stake in the company, and then launched his $54.20 per share offer.

They’re down another 1.7% today in premarket trading at $36.70, as traders conclude the deal is very unlikely to happen at the original price, or possibly at all.

Today’s jobs report shows that there are around 460,000 more people ‘economically inactive’ than before the pandemic — neither in work, nor looking for a job.

The total economically inactive rose by by 65,000 in January-March, to 8.829m.

As this chart shows, there has been a rise in long-term sickness, as well as in people leaving the jobs market to care for family:

Many of those are over 50s, as Emily Andrews, Deputy Director for Work at the Centre for Ageing Better, explains:

“The UK workforce participation crisis is continuing – driven by older workers leaving the labour market. There are 246,000 fewer people aged 50-64 participating in the workforce than there were at the start of the pandemic.

“This means there could be up to a quarter of a million older workers out of employment earlier than they had planned, potentially impacting their retirement plans, while companies are missing out on the positive impact older workers can bring.

Tony Wilson, director of the Institute for Employment Studies, says there is a recruitment crisis:

“There’s some good news in today’s figures, with record pay growth in the private sector just about keeping wages ahead of inflation, and unemployment continuing to fall to its lowest since 1974. However this is masking now the tightest labour market that we have seen in at least half a century, with more vacancies than there are unemployed people for the first time ever, and well over a million fewer people in the labour force than on pre-pandemic trends.

It’s this recruitment crisis that is fuelling higher private sector pay and bonuses and is also behind recent rises in interest rates. However rather than trying to dampen demand, we need to be doing far more to boost labour supply, which would support economic growth, raise household incomes and help contain inflation. In fact if anything, we’re cutting investment in employment support at just the time that we should be ramping it up.

M&S chairman Archie Norman also warned that food price inflation in Britain could hit 10% this year.

He told Radio 4’s Today programme that global prices are rising, such as wheat and freight costs, oil and energy, so all retailers will “reluctantly” have to lift their prices.

But will it be an ‘apocalyptic’ extent, as Bank of England governor Andrew Bailey warned yesterday?

Norman says he wouldn’t use that term — but concedes it will be a tough time for consumers.

“I think you have to keep it in context, wages have been rising quite well in the UK, we’ve given all our people over 5% wage increase this year.

It will be “very negative for consumer discretionary income”, but not apocalyptic, at least not for M&S’s customers, Norman adds.

“It wouldn’t be surprising to see food price inflation over the course of the year running towards 8-10%.”

“But we don’t know that yet because it runs through the year, some has gone through now but quite a lot’s still to come.”

The chairman of Marks & Spencer has backed the British government’s efforts to make changes to the Northern Ireland protocol.

Archie Norman told the Today Programme that M&S is in the front line of the problem at the UK border since Brexit, which is adding to its costs and creating much more paperwork.

It has to close its French business because of customs rules, and it is proving very tough to make its business in the Republic of Ireland work, he says.

Norman explains the new frictions at the borders, following Brexit. At the moment, M&S wagons arriving in the Republic have to carry 700 pages of documentation covering the items on board, which takes eight hours to prepare. Some of the descriptors, particularly of animal products, have to be written in Latin, and in a certain typeface, Norman says.

M&S employs 13 vets in Motherwell to prepare it all, and it pushes up driver time by 30% — meaning it all costs around £30m.

Currently, there’s an easement in Northern Ireland, so the controls aren’t the same. But the EU are looking for comparable controls to be introduced.

Were that to happen, Norman says, “quite a lot of products” wouldn’t get to Northern Ireland, and what did get in would be very expensive.

Marks & Spencer is a big company, we can make almost anything work, however bureaucratic, but for the small artisan cheesemaker or cake-baker, and so on, it would simply be impossible to export any more.

Right now, Norman says, it is managing to supply Northern Ireland without a shortfall, although it costs more money. The paperwork for Northern Ireland takes one hour, compared with eight for Dublin.

Norman (a former Conservative MP) argues that tougher safety checks on shipments to Northern Ireland aren’t needed, as UK food standards by law, are “equivalent or higher” than in the EU.

The Commission want every product from Great Britain going into Northern Ireland to be labelled as being meant for UK consumption only — that would cost M&S £9m per year, Norman says, and be impossible for small producers.

Q: Do you think, why on earth did the UK sign up to this?

Norman argues that EU is obsessed with the letter of the rules, while the UK looks at the the purpose of the rules.

Q: So should the UK try and agree a shorter, time-limited deal?

Norman suggests that train has ‘left the station’, and the priority now is to solve the problem on Northern Ireland, so its people get the food they deserve and require.

What the British government is proposing at the moment seems to me a triumph of common sense over rules-based mentality, and will make sure that at a time of inflation the Northern Irish people can get the fresh foods that they’re used to, and entitled to.

Soaring inflation means the wage squeeze is going to get ‘far worse’, even though some firms are paying bonuses to attract or hold onto staff in a tight labour market.

So warns Hannah Slaughter, senior economist at the Resolution Foundation, said:

“The UK labour market continues to tighten, with the number of unemployed people having fallen below the number of job vacancies for the first time ever. People are taking advantage of these conditions to move jobs, and employers are responding by paying bonuses to hire or retain key staff.

“But for the vast majority of the workforce, the labour market may feel far less hot. There is little sign of wider pay pressures building and real wages are getting squeezed even tighter.

“With inflation having shot up in recent months, the scale of Britain’s wage squeeze is going to get far worse.”