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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.
UK wage growth slows in latest observed figures
Clear evidence of a slowdown in UK wage growth is one of the key changes that Bank of England policymakers want to see before they can conclude that inflation is sustainably on the way down and start cutting interest rates.
The latest official data, showing a sharp decline in the pace of earnings growth in the three months to November, raised hopes among some economists that pay pressures had already begun to ease enough for inflation to fall below the Bank of England’s 2% target within the coming months.
Such a decline could now pave the way for a loosening of the current monetary policy, with investors betting that the Bank of England will start lowering its benchmark rate from a 15-year high of 5.25% from May onwards.
But many economists have said the true state of the labour market was still covered in uncertainty, while the Office for National Statistics continued to tackle problems that have prevented it publishing many of the figures on which policymakers usually rely on for forecasts.
The ONS said vacancies, while still above pre-Covid levels, fell for the 19th month in succession in December, while the number of payrolled employees remained relatively stable. Annual growth in earnings — both including and excluding bonuses — remains high by historical standards, at 6.5% and 6.6% respectively.
However, it is well below the peaks reached in the summer of 2023. Monthly figures, while unstable, show average earnings in the private sector have barely risen since August of last year.
In the meantime, the ONS is continuing to publish estimates based on tax and benefits records. On Tuesday, these suggested unemployment had remained steady at 4.2% since last summer — below the 4.5% level the Bank of England thinks is consistent with inflation remaining sustainably at its target.
But the most recent business surveys and recent trading updates from big recruitment companies now suggest the jobs market may have softened more than this observed level, with many firms reporting weaker hiring conditions in the past week.
The central bank has called attention to differences between the official earnings figures and other survey-based measures of wage growth, which therefore means it is not placing more emphasis on any single data source.
Economists have also said there were other reasons why the Bank of England might want to wait until early summer before cutting interest rates.
By the Summer months, it should realistically have a clearer view of unemployment. It will also want to observe how April’s planned uprating of the minimum wage, the state pension and working-age benefits affects overall pay growth structure and its links through to consumer spending. It will also be able to assess the likely impact of any tax cuts announced in the Budget on March 6.
Global economy set for weakest growth since pandemic, warns World Bank
The global economy is set to grow at its slowest pace since the pandemic, the World Bank has warned.
It has forecast growth of just 2.4% in 2024 and stated higher interest rates were a major factor in this decision. Global trade and investment would continue to be stunted by conflicts in Ukraine and the Middle East, it said in its most recent statement.
Outside of the pandemic, growth of 2.4% would be the weakest since the 2009-09 financial crisis. It said the resilience of the US economy meant last year's growth was likely to come at 2.6%.
This data comes at a time when central banks around the world are beginning to feel that they are getting ahead of the cost living crisis. Nearly two years of steady increases in the cost of borrowing globally have brought inflation closer to the 2% target in the US, UK and Eurozone and rate cuts are widely expected this year.
However, these higher interest rates in the world's biggest economies also make borrowing more expensive in poorer countries, which has generated concern amongst the World Bank.
There is particular concern about the cost of food for the world's poorest people, especially given last year's 27% increase in the price of rice, which has been linked to India severely restricting exports. However larger supplies of other crops such as grains mean average food prices are set to fall 1% this year.
There is another reminder that China, the world's second biggest economy, continues to be blighted by a reluctance for consumers to spend money in shops which has led to prices falling even further. Combined with the vast debts in its troubled property sector the Chinese economy is forecast to grow just 4.5%.
This expected figure would be the lowest in decades and even below the modest 5% target the government set for 2023. As well as foreign companies investing less, some of this slowdown is because of longer-term trends such as an ageing population and the difficulties in maintaining the pace of development seen over the last 20 years.
Overall the World Bank is forecasting that the five years to the end of 2024 will add up to the slowest half decade of global economic growth in 30 years.
Strong US jobs growth dampens talk of rate cuts
Hiring in the US was unexpectedly strong last month, as the American economy continued to defy forecasts of a slowdown.
Employers added 216,000 jobs and the unemployment rate was unchanged at 3.7%, the Labor Department said in its most recent statement. Government hiring was the driving force behind the gains, which extended one of the strongest streaks of job creation on record.
The growth has confounded forecasters expecting job losses as higher borrowing costs slowed the economy. But it has raised hopes that the US central bank will be able to get a grip on inflation, the rate at which prices rise, without triggering a painful downturn.
As a result, the US added 2.7 million jobs last year, slowing after the boom of 4.8 million in 2022 and 6.4 million in 2021, but at a faster pace than pre-pandemic years.
Wages showed signs of rising, with average hourly earnings in December up 4.1% from a year earlier. Analysts said the signs of strength in the report should dampen speculation that the Federal Reserve will need to reverse course quickly and start cutting interest rates to shield the economy from damage.
The most recent report showed consumer prices rose 3.1% in November from a year earlier. Alongside this, there was limited growth in sectors such as retail, financial activities and leisure and hospitality, which includes bars, restaurants and the arts, and has yet to recover to pre-pandemic employment levels.
The number of jobs in transportation and warehousing, which boomed during the pandemic, fell, while the Labor Department also said job growth in November and October was lower than previously estimated.
