UK wages heat up, Marks and Spencer’s rosier outlook and Japan’s surprise growth
Susannah Streeter, head of money and markets, Hargreaves Lansdown. ‘”The blast of cold air from higher interest rates is being felt in the labour market, with unemployment ticking up but the risk is that the growth in wages will continue to fan the fires of inflation. With the highest annual wage growth recorded in June since records began in 2001, another rate hike from the Bank of England looks bolted on in September. The pound has crept upwards on expectation that rates will rise again but significant gains are set to be limited given the challenges ahead of the UK economy. Sterling rose by 0.28% immediately after the jobs data was released, rising to $1.272 and also strengthening against the euro, before losing some ground.
The picture painted by these jobs numbers is adding up to be a stagflation scenario, with prospects of growth slim while inflation risks staying stubborn. Industrial disputes between NHS workers and the government are not helping the inflation battle. The number of people inactive because of long-term sickness has increased to a record high, and with painful waits for treatment not set to be cured any time soon, the fight for labour is set to continue. With real wages moving back into positive territory for the first time and surpassing the headline inflation rate, consumer spending is expected to stay more upbeat, which bodes better for companies selling discretionary goods – items we might want but we don’t necessarily need.
This trend is coming through loud and clear in Marks and Spencer’s update today. The retailer is seen as a bellwether for consumer sentiment and by raising its profit outlook it shows just how much more resilient shoppers are proving to be despite the ongoing storm of inflation and higher interest rates. It’s now expecting profit growth for the full 2023-24 year despite having forecast a small drop in profit. Its customers are not penny pinching as much as forecast, particularly on groceries with food sales growing by more than 11% in the first 19 weeks of the year, in stores open a year or more. It’s not quite popping the champagne corks just yet, with management flagging uncertainty ahead, but the results will certainly warrant unscrewing some elderflower sparkling in celebration.
Japan is also reaping the benefits of continuing demand for products – particularly cars in key markets, helped by a weaker yen which has made the cost of its exports cheaper. That’s helped boost growth in the country by more than expected, with GDP growing at an annualised rate of 6% in the April-June period, staving off worries that it may be battered by global recessionary headwinds. But the Japanese consumer remains wary, with domestic demand weaker as the cost of imports has surged.
China’s deflating growth continues to be a worry with retail sales numbers, industrial output and investment data coming in lower than expected. The triple disappointment immediately prompted the People’s Bank of China to cut a key medium term loan rate, but it failed to stem a fresh weakening of sentiment. Policy action overall has underwhelmed, and investors are looking for a lot more welly before being more confident that the economy may have more insulated from the downturn.
The Ruble has staged a mini recovery as speculation swirls about the central bank hiking interest rates. Shackled by sanctions Russia can’t reap the benefits of the weaker Ruble with exports plunging as key markets are blocked, while imports are surging and defence spending soaring. Despite stressing that the financial stability was not an issue, in a knee-jerk move the bank later called the meeting to discuss rates. There is expectation that the bank may also seek to tighten rules on cross-border capital flows. The fall in the rouble accelerated when Wagner brief caused Russians to move money into foreign accounts.”