FTSE 100 close: London up as markets digest unemployment, wages and pensions data
London’s FTSE 100 ended Tuesday up, as markets digested fresh figures on unemployment and wage growth, the pensions triple lock and grocery inflation.
The capital’s premier blue chip index went above 7,500 points on a busy morning as it rose by between 0.2 and 0.4 per cent just before 9am. It stayed between that and half a per cent, which it finished on by the close.
Associated British Foods, which owns Primark, raised its outlook for the rest of the year, with the bottom line bolstered by new store rollouts and click and collect trials. Its shares were up by more than five per cent by the close.
Biggest faller on the FTSE 100 was Smurfitt Kappa, following it’s mega-deal with US rival WestRock. Investors didn’t appear to be delighted with the major tie up, which makes the firm one of the biggest packaging companies in the world, as its shared plummeted by almost 10 per cent.
This comes after fresh figures from the Office for National Statistics this morning, posed a new headache for the Bank of England when it meets later this month.
The data showed annual pay growth excluding bonuses averaged 7.8 per cent between May and July, the same as the previous three month period and the joint highest rate of pay growth since records began in 2001. Including bonuses, earnings growth came in at 8.5 per cent.
London started positively in part due to worrying news in Asia, with China’s economy due to grow less than previously thought this year — and next.
A struggling property market dogs what was once the world’s growth engine, according to a Reuters poll of economists, who said the risks were skewed to further downgrades.
“Sentiment is erring on the positive, helped by an easing of property woes in China, with the FTSE 100 higher in early trade,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“Debt-laden giant Country Garden has won creditor approval to extend payments on some bonds adding to a slightly more optimistic take on China’s economic prospects,” she added. “Brent Crude has inched up a little, ahead of key market insight reports later, still supported by extended supply cuts.”
On the latest ONS figures, she said “wage growth is still hot in Britain and the temperature isn’t coming down much, providing little relief for Bank of England policymakers who need more evidence that employers are showing restraint before they’ll feel confident about pressing pause on interest rate hikes.”
The Recruitment and Employment Federation was, however, quick to say that wage growth was not necessarily the cause of persistent price rises.
“Pay rising to meet falling inflation is a function of firms giving higher pay awards to staff in the spring, ongoing staff shortages in some sectors such as hospitality and logistics, and a big rise in the minimum wage,” said REC chief Neil Carberry.
“It was always likely that pay would meet falling inflation during this year, but we should be cautious of any analysis that suggests pay is driving rising prices at this stage – businesses have been carefully managing looking after workers and maintaining cost stability.”
Danni Hewson, head of financial analysis at AJ Bell added that “wages have been shooting up as a tight labour market pushed employers to dig deep to help their workers deal with cost of living pressures, but this is the first time in almost two years people will actually feel the benefit.
“Until now inflation has gobbled up all that additional cash leaving people feeling worse off and struggling to pay everyday bills.
“Now inflation has cooled enough that those increases will start to make a small difference but with fears that inflation may have another nasty surprise in store and additional pressures from interest rate rises, some households might be forgiven for feeling increasingly weary with the whole shebang.”
Meanwhile, the cost of the ‘triple lock’ pension is set to rise another £2bn thanks to higher than expected wage growth, putting further pressure on the government to reconsider its flagship pensions commitment.
In an exclusive interview with City PM, work and pensions secretary Mel Stride made it clear the triple lock option wasn’t sustainable in the long term – as he suggested the government may look to change it.
“The persistence of excessively vigorous wage growth in July probably means the MPC can’t stop raising Bank Rate at this month’s meeting, but the end of the tightening cycle is not far off now,” said Pantheon Macroeconomics.
London’s FTSE 250 index, which is more closely aligned with the UK domestic market, was also up today, ending Tuesday above 18,536, just under 0.1 per cent in the green.
Defence firm Chemring said it was on track to hit forecasts — if a £25m deal was signed. On the news, its shares dropped nearly six per cent.
Fraser McKevitt, head of retail and consumer insight at Kantar, said the news “won’t be a number to celebrate for many households. Our data shows that 95 per cent of consumers are still worried about the impact of rising grocery prices, matched only by their concern about energy bills.
“After a full year of double digit grocery inflation, it’s no surprise that just under a quarter of the population consider themselves to be struggling financially – although this is a very slight drop compared to May.”