Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The pound has hit a new one-year high this morning, as the City braces for a new health-check on Britain’s jobs market.
Sterling has risen to $1.332 against the dollar, the highest level in exactly a year. That means it has clawed back around half its losses after last year’s EU referendum.
Today’s rally follows yesterday’s unexpected jump in inflation to 2.9%, which is fuelling expectations that interest rates could rise sooner than previously thought.
But… is Britain’s economy really strong enough to handle a rate rise? We’ll get a clue at 9.30am when the latest labour market statistics are released.
The City expects that the UK economy continued to create jobs in the last quarter, leaving the unemployment rate at just 4.4%, its lowest in over 40 years.
But this jobs recovery hasn’t been feeding through to people’s pockets. Average earnings, excluding bonuses, are expected to have risen by 2.2% per year in the three months to July. That would be an improvement on last month’s figures, but well below inflation.
As Royal Bank of Canada put it:
For average earnings the story continues to be disappointing.
And that’s why most economists don’t expect the Bank of England to raise interest rates until 2018.
But…the BoE meets to set interest rates tomorrow, and there’s chatter in the City that chief economist Andy Haldane could become the third policymaker to vote for a hike.
Michael Hewson of CMC Capital Markets explains:
A solid wages number could shift the calculus on the MPC further towards a rate rise with chief economist Andrew Haldane likely to join the other two hawks Michael Saunders and Ian McCafferty in pushing for a rate rise, given recent comments he made during the summer, when inflation ticked up to the same level it is now.
Also coming up…
City traders will also be remembering the events of 10 years ago, when Northern Rock was forced to seek help from the Bank of England – triggering the first UK bank run in over a century.
The Resolution Foundation is holding an events in London with former Chancellor of the Exchequer Alistair Darling this morning, so we’ll keep an ear out.
European stock markets are expected to dip at the open, with the FTSE 100 being called down around 18 points or 0.25%.
We also get new eurozone unemployment and factory output statistics.
- 8am BST: Eurozone unemployment figures for the second quarter of 2017
- 9.30am: UK labour market report
- 10am: Eurozone industrial production figures for July