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In our Market Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
The UK's unemployment rate has increased, according to official data, while wage growth continues to decelerate.
Unemployment reached 4.3% in the three months leading up to September, up from 4% in the previous quarter.
However, the Office for National Statistics (ONS) cautioned against placing too much emphasis on this latest jobs report due to issues with its data collection methods.
Although wage growth has slowed, pay is still rising faster than inflation, which tracks the pace of price increases. Excluding bonuses, wages grew at an annual rate of 4.8% from July to September—the lowest rate in more than two years. Job vacancies also continued to decline, following a two-year trend.
The Bank of England closely monitors employment data when setting interest rates. Last week, it lowered rates for the second time this year, with inflation falling below its 2% target, standing at 1.7%.
The ONS recently acknowledged that challenges with the data were affecting the central bank and noted that efforts to improve accuracy are underway.
The ONS figures align with reports that some businesses, already grappling with higher costs, paused hiring ahead of the recent Budget announcement.
Following recent tax increases, businesses have expressed concerns that they may need to limit hiring, curb wage growth, or increase prices.
While public sector pay adjustments by the government will gradually impact official wage data over the coming year, economists warn that the upcoming rise in employers’ National Insurance Contributions (NICs) could strain the private sector. However, some economists doubt that the latest ONS figures will prompt the Bank of England to pursue another rate cut in December.
German economy hits trouble in recent forecasts
Germany's economic sentiment declined sharply in November, driven by internal political gridlock and uncertainties following Donald Trump’s election.
The ZEW Economic Sentiment Index, a measure of the outlook from up to 300 economists, bankers, and industry experts, dropped from 13.1 in October to 7.1 in November—well below expectations of 13 and far under the one-year average of 25 points.
Analysts attribute the decline to fears surrounding Trump’s trade policies and the continued stalemate within Germany’s coalition government.
This latest reading marks the ZEW index's second-lowest level in 2024, and experts’ views on Germany's present economic state have also worsened, with the ZEW current situation index dropping 4.5 points to -91.4. On the inflation front, Germany’s Federal Statistical Office confirmed a year-over-year increase to 2% in October, up from 1.6% in September.
The ZEW Economic Sentiment Index for the eurozone also saw a decline, falling from 20.1 in October to 12.5 in November, missing the forecasted figure of 20.1. The eurozone's current situation index also dipped by 3 points to -43.8.
ZEW President Achim Wambach noted that Germany’s economic sentiment reflects ongoing anxieties over political and trade uncertainties, especially in light of recent developments in the United States.
Chinese government announces bold new stimulus package
China has unveiled a 10 trillion yuan debt support package for local governments, along with other economic measures, but refrained from implementing a stimulus many analysts had anticipated.
The fiscal plan includes a 6 trillion yuan (£646bn) increase in local government debt ceilings over three years, aimed at replacing hidden debts, which stood at 14.3 trillion yuan by the end of 2023.
Hidden debt refers to borrowing that governments are responsible for but is not disclosed to citizens or creditors, as defined by the International Monetary Fund.
Authorities have set a goal to reduce this hidden debt to 2.3 trillion yuan by 2028. Following the 2008 financial crisis, local governments in China increasingly used financing vehicles to accumulate hidden debt, often funding large infrastructure projects.
However, as revenues fell, local governments struggled with rising debts, cutting civil servant pay, delaying wages, and accruing more debt with the private sector, which contributed to deflationary pressures.
The announcement followed a meeting of the National People's Congress Standing Committee, the highest lawmaking body in China.
Many observers had expected more aggressive measures to stimulate consumer spending and support China’s struggling economy, as GDP growth dropped to 4.6% in the third quarter of 2024, falling short of the 5% target.
Finance Minister Lan Fo'an indicated that more measures are forthcoming, though he did not provide further details.
