FTSE 100 charges to one-month high and pound slides as UK earnings growth slows

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Key highlights: 

                                                                                                    

Market Report: Hopes Trump's tax reforms will boost Ashtead's earnings 'significantly' see shares hit record high

Shares in equipment hire firm Ashtead stormed to a new record high in intraday trading after Bank of America Merrill Lynch said US president Donald Trump’s promised tax reforms could boost earnings significantly.

The US investment bank lifted its price target from £16.20 to £20 and raised its earnings per share forecasts 4-6pc.

In a meeting with top executives at US retail companies, Trump said he would lower taxes substantially,  echoing a vow he made last Thursday that subsequently revived the "Trump trade".

As Ashtead generates around 92pc of its earnings in the US, analysts at the bank said a reduction in the corporate tax rate would be “material” for the FTSE 100 company.

Andy Murphy, of BoAML, said: “If the tax rate was to be reduced to 15pc, President Donald Trump’s pledge, then the net enhancement could be as much as 20pc.”

At present, the bank believes this is not reflected in the company’s share price.

Separately, Redburn also hiked Ashtead’s earnings per share guidance by 2pc this year reflecting robust trading and “slightly less severe effects of Brexit”. The bullish broker notes lifted the FTSE 100 stock 42p, or 2.5pc, to £17.08.

On the wider market, the FTSE 100 jumped 33.85 points, or 0.47pc, to 7,302.41 buoyed by a rally in banking stocks.

Investors piled into the banking sector after Fed chair Janet Yellen struck a hawkish tone during her appearance before the Senate. On Tuesday, she said the Federal Reserve will likely need to raise interest rates at an upcoming meeting. Standard Chartered climbed 19.1p to 817.9p, Royal Bank of Scotland rose 5p to 246p, Barclays advanced 4p to 239.4p and HSBC closed 8.6p higher at 705.8p.

Miner BHP Billiton also gained ground, up 28p to £14.20, after it agreed to renew talks with striking workers at its Escondida copper mine in Chile.

On the other side, tour operator TUI AG came under pressure, falling 88p to £11.30, a day after it delivered  a robust first-quarter trading update.

Elsewhere, it was odds off for UK bookmakers as HSBC downgraded the sector citing a potential consumer slowdown and growing regulatory risks. Taking a more bearish view, the bank cut Paddy Power’s rating to “hold” and William Hill and Ladbrokes Coral to “reduce”. Analyst Joe Thomas cautioned higher prices, sluggish wage growth and low savings rate could put a squeeze on spending as the year wears on.

“Bookmakers are exposed and it could put further pressure on an already difficult sector.”

Shares in Paddy Power Betfair dropped 120p to £84.30, William Hill slumped 7.7p to 264.3p and Ladbrokes Coral surrendered 4p to finish at 121.8p.

Meanwhile, InterContinental Hotels Group received mixed reviews. Berenberg thinks the hotel group has the potential for a surprise share buyback, while UBS warned shared accommodation is a threat to the hotel industry. Shares fell 5p to £38.34.

Financial broker Nex tumbled to the bottom of the mid-cap index, down 23p to 551.5p, after it gave a cautious assessment of its prospects for the year ahead.

Carillion also found itself among the mid-cap fallers after Canaccord Genuity began covering the stock with a “sell” rating as it believes the stock is “potentially oversold in the near term and lacks a clear, identifiable strategy”. Shares were off by 5.1p at 218p by close.

In a sector wide note on UK contractors, Canaccord issued a “buy” rating on Balfour Beatty and Costain, sending shares 4.9p and 4p higher, respectively.

Despite a dip in gold prices, precious metals miner Acacia extended its gains. Jefferies, JP Morgan and Credit Suisse hiked its price target and Numis raised its rating to “buy” a day after the group doubled its full-year dividend. The mid-cap stock rallied 17.5p to 519.5p.

Meanwhile, Goldman Sachs added Hunting to its ‘conviction buy list’ following its recent underperformance propelling shares 17p to 587p.

On Aim, veterinary medicine supplier Animalcare jumped 24o to 331.5p after it posted half-year revenue growth of 12pc to £7.97m. In its wake, Panmure Gordon upgraded its earnings forecasts and reiterated its ‘buy’ rating.

Finally, Panmure Gordon also began covering TP Group with a “buy” rating. The broker believes shares are “significantly undervalued”. Shares edged up 1p, or 14pc, to 8.1p.  

With that, it's time to close. I'll be back again tomorrow with more markets coverage from 8.30am. 

European bourses close higher as banks rally

A rise in rate hike expectations following Fed chair Janet Yellen's comments boosted banking stocks and lifted European bourses into positive territory. 

By close of play: 

  • FTSE 100: +0.47pc
  • DAX: +0.28pc
  • CAC 40: +0.73pc
  • IBEX: +0.83pc

 Joshua Mahony, of IG, said: "Another day in the green for the FTSE, as the global equity boom continues to push onwards irrespective of anything coming from the economic calendar. It has been a busy day which has seen UK inflation, alongside US inflation and retail sales do little to stand in the way of this stock market rally train.

"Yesterday’s malaise was interrupted by Janet Yellen’s Senate testimony, with a surprisingly hawkish tone sparking a realignment of markets in favour of a heightened chance of a March rate hike. We have seen Yellen back on the stand this afternoon, and it seems she wants to temper some of the more hawkish statements from yesterday, instead choosing to insist on a slow and gradual rate of change for interest rates." 

FTSE 250 records seventh successive closing high

The FTSE 250 has extended its run of record closes, finishing up 0.21pc at 18,827.20.

The mid-cap index has now closed at a record high for seven trading sessions in a row, marking its longest run of all-time closing peaks in two years. 

In February 2015, it enjoyed a run of nine closing highs in a row. 

Fed rate hike expectations jump to 40pc for March

Why has the FTSE 250 hit a record high and is it still the best gauge of domestic sentiment? 

The FTSE 250 index has scaled a new peak of 18,874.76, maintaining momentum that has propelled it to all-time highs for seven successive sessions.

An ebullient rally has lifted the mid-cap index by more than 2.3pc since February 7,  throwing off any fears of economic peril upon activating Article 50 next month.

If the FTSE 250 closes in positive territory, it will extend its record run of consecutive closing highs to seven, the longest run since February 2015 when it closed at an all-time high for nine days in a row.

So the FTSE 250 hit an all-time high. How?

  1. U-turn in sentiment ahead of triggering Article 50
  2. Housebuilders back at pre-Brexit levels
  3. UK data blitz continues
  4. Mining surge and robust corporate earnings

Why is it important the FTSE 250 has touched new highs?

The FTSE 250 index is often considered to be a proxy for the health of UK plc. As the index is much more closely tied to the UK economy, compared to the FTSE 100, its movements are frequently a better reflection about what’s happening at home. The FTSE 250 scaling dizzy new heights would suggest all is well in the UK economy since the Brexit vote.

But is it that simple? Is the FTSE 250 still a reliable barometer of UK economic health?  

Not quite. While many of the FTSE 250 constituents do the majority of their business in the UK, some generate their business from further afield.

Mr Lawler noted: “There are still many big firms with large foreign operations in the FTSE 250 so it’s not the best gauge of domestic sentiment.”

A better barometer of UK health may be the FTSE Local UK index. Companies listed on this index generate more than 70pc of their revenues domestically. While the FTSE 250 has risen 8.7pc since the EU referendum, the FTSE Local UK index is still 2.2pc below its pre-Brexit levels.

Gold dips after upbeat US data and expectations of rate hike

Gold has dipped after this afternoon's stronger-than-expected US inflation and retail figures. 

It also lost its appeal as expectations of a rate rise rose following comments by Fed chair Janet Yellen yesterday.  She told a Senate committee that the US central bank will likely need to raise interest rates at an upcoming meeting

The precious metal fell by as much as 0.6pc today to $1,216.74 an ounce. 

Yellen: By most measures liquidity in corporate bond markets remain healthy

 Speaking to the House Financial Services Committee this afternoon, Fed chair Janet Yellen has said by most measures liquidity in corporate bond markets remain "healthy". 

Credit: Getty Images

Fed's Yellen to repeat testimony pointing to rate hike

Don't get to excited about Janet Yellen's appearance before the House of Representatives committee. It turns out her prepared remarks are identical to her written testimony submitted yesterday to a separate panel, a House committee aide said today. 

Yesterday, Yellen told a Senate committee that the Fed was on track to raise rates at an upcoming meeting. 

You can watch her appearance before the House Financial Services Committee here: 

Heineken boss praises British pub 'institution' ahead of Punch Taverns takeover

Shares in Punch Taverns edged up 0.8p to 179.5p after the boss of Heineken Jean-Francois Van Boxmeer British pub 'institution' ahead of its acquisition of Punch. Sam Dean reports: 

The boss of global brewing giant Heineken has said that British pubs are an “institution” that continue to provide great opportunities for business as the company presses on with its acquisition of pub chain Punch Taverns.

Heineken last year won the backing of the Punch Taverns board for a £403m takeover alongside private equity firm Patron Capital, with its shareholders approving the offer last week.

The move will see the brewer acquire nearly 2,000 British pubs and follows Heineken’s entry into the UK pub market in 2008, when it took over Scottish & Newcastle.

“Although the pub sector in the UK has been contracting over the last few years, when you do things right it is a very good business to be in,” Heineken's chief executive Jean-Francois Van Boxmeer told CNBC.

“We call it the great British pub. It is an institution in the country and it’s also a great business. We have expertise in developing that business, hence the proposed acquisition of part of the Punch estate, which would strategically add to our strength in the UK.”

Read the full story here

Dow Jones sets another record high at opening bell

The Dow Jones touched a new all-time high as the opening bell sounded on Wall Street this afternoon. However, moves across the three main US indices were relatively subdued despite a raft of upbeat US data. 

At the opening bell: 

  • Dow Jones: +1pt
  • Nasda: -2.13pts
  • Nasdaq: -4.06pts

US industrial output falls as warm weather weighs on demand

The deluge of economic data from the US continues. Data from the US central bank showed that US industrial production fell last month due to warm weather, which resulted in a major drop in utilities output. 

The Fed said its overall industrial production index fell 0.3pc in January, falling short of expectations of a flat reading. The US central bank also revised its December gain downwards to 0.6pc. 

Pound extends losses after upbeat US data

The pound slumped below $1.24, extending its earlier losses, after US consumer prices made their biggest jump in four years. 

A resurgent dollar weighed heavily on the pound, dragging it further into the red, down 0.6pc to $1.2390, following the US economic data release. 

Pound hits fresh one-week low on the back of upbeat US data Credit: Bloomberg

Upbeat US data propels dollar index to one-month high

Better-than-expected US retail and inflation figures have propelled the dollar index to a one month high this afternooon. 

The index, which measures the greenback against six major currencies, rose 0.4pc to 101.76.

US inflation rises by most in four years

Consumer prices in the US rose in January by the most since February 2013 driven by a surge in higher gasoline costs and other good and services. 

The consumer price index rose by 0.6pc last month, beating forecasts and ahead of a 0.3pc gain in December, data from the Labor Department showed this afternoon. 

US stocks poised to open flat ahead of data blast

US stocks are set for a relatively subdued open this afternoon on Wall Street as investors await a blast of economic data. 

It also comes a day after Fed chair Janet Yellen told the US Senate Banking Committee that delaying interest rate hikes would be unwise. She will testify before the House Financial Services Committee today. 

Here's a look at the opening calls courtesy of IG: 

US retail sales beat expectations in January

US retail sales rose by more than expected last month as households splashed out electronics and a range of other goods.

Data from the Commerce Department showed retail sales increased 0.4pc last month, ahead of forecasts of a 0.1pc increase. December's retail sales were revised up to show a 1pc rise instead of the previously reported 0.6pcadvance.

Last month's fairly upbeat sales came despite motor vehicle purchases recording their biggest drop in 10 months. Compared to January last year retail sales were up 5.6pc.

Commenting on the results beat, Naeem Aslam, of Think Markets, said: "The US retail sales data was hot and it tells us how much investors are willing to dig deep into their pockets and how confident they are in their spending attitude. The number released has shown that investors are assertive with their approach and this is despite the fact that we are seeing higher inflation. The CPI data released today was also able to move the needle from its previous reading.  You can see that the picture is changing as inflation has picked up over in China and this is having more prominent impact over in the US. Moreover, Trumps’s border tax is only going to fuel inflation further, let alone what his phenomenal tax plans will do."  

Moody's: UK credit card consumers more vulnerable to economic shocks

UK credit card consumers are among the most highly leveraged in Europe, and are more vulnerable to economic shocks, Moody's has warned. 

Lisa Macedo, a Vice President at Moody's, cautioned: "Credit cards are a mainstream product in the UK, which by definition captures a cross-section of society, implying more varied risks and credit profiles." 

The key points raised by credit rating agency Moody's include: 

  1. The cost of servicing household debt versus net disposable income is among the highest in the European Union. Consequently, the rating agency says UK consumers are more exposed to economic shocks, all else being equal.
  2. Moody’s says the UK's use of credit cards versus most other European markets is disproportionately high.  Available data show that, in 2015, UK cardholders - including corporate and consumer entities - used their card 224 times a year (see chart below), versus: - 154 times in France,  - 130 times in Ireland,  - 64 times in Spain, and  - 45 times in Germany. Credit card usage in the UK is 115% higher than in the EU (see chart below)
  3.  Moody’s says France's consumer performance is more stable throughout the economic cycle. Credit card loans tend to be high yielding and therefore profitable.
Credit: Moody's

World stocks head towards record high on Yellen, US outlook

World stocks rose to a whisker off all-time highs this afternoon and the dollar rose for the 11th straight day following Federal Reserve Chair Janet Yellen's flagging of a possible interest rate rise next month.

The dollar notched up its longest winning streak in almost five years after Yellen said on Tuesday the Fed would probably need to raise rates at an upcoming meeting and that delaying could leave the central bank's policymaking committee behind the curve. 

Credit: Reuters

Propelled by record highs on Wall Street, MSCI's benchmark global equity index rose 0.25pc to 442.4 points . its highest since May 2015 and two points off its record high. It has not fallen for six sessions, its longest such run since last July.

"The simple act of leaving a March (U.S.) hike on the table, given that it had been all but written off by investors, is what triggered such a reaction," said Craig Erlam, senior market analyst at Oanda.

Yellen's remarks helped push Wall Street by boosting US bank stocks. Goldman Sachs shares GS.N hit a record high, and are up 37pc since the US presidential election on Nov. 8.

Report from Reuters

Apple to spend extra cash from Trump tax reforms on shareholders, not US manufacturing

Apple will spend extra cash earned from Trump tax reforms on shareholders. Cara McGoogan reports: 

Apple has quashed Donald Trump's hopes that it would build its products in the US, saying it would give the extra money earned from relaxed tax laws to shareholders rather than investing in manufacturing at home. 

President Trump has promised to lower repatriation taxes, which take a large chunk out of companies' earnings when they try to move cash from abroad back to their home country. 

This move could benefit Apple, which holds more than 90pc of its vast $237bn (£190bn) cash pile overseas. However Luca Maestri, Apple's chief financial officer, indicated that shareholders would stand to benefit, rather than manufacturers. 

The news will come as a blow to President Trump, who said on the campaign trail that he would "get Apple to build their damn computers and things in this country instead of in other countries". 

One of Mr Trump's reasons for lowering taxes is to create more jobs in the US. But, speaking at a Goldman Sachs investor conference, Mr Maestri said the rule changes would give Apple "additional flexibility around our capital return activities".

He dismissed the feasibility of building products such as the iPhone in America because of the lack of components. "Essentially, the supply chain for the tech industry is not in the US today," he said. 

Read the full story here

Half-time update: European bourses extend gains

A rally in banking stocks has propelled European bourses higher this afternoon. 

At midday: 

  • FTSE 100: +0.53pc
  • DAX: +0.2pc
  • CAC 40: ++0.47pc
  • IBEX: +0.47pc

Chris Beauchamp, of IG,said: "Markets continue to clock up gains, with the signs of spring weather evidently putting traders into an optimistic mood. There are plenty of reasons to be bearish, including an earnings season that has been so-so at best, plus ongoing geopolitical turmoil and the impending return of the Greek crisis, but once again we have all been reminded of the fact that, sometimes, markets just want to go up.

"Last year there were plenty of voices (including me) pointing out the potential tailwinds for markets once equity inflows came back in strength, and perhaps we are seeing some of this now. Valuations are stretched, that is certain, but for now this does not seem to matter. And when the dip does arrive, it will provide another great buying opportunity. TUI’s bounce yesterday was just a flash in the pan it seems, with reality reasserting itself in impressive style. Despite the good parts of the update, earnings momentum has been decidedly weak, and with little sign of improvement the reasons to hold the stock are diminishing rapidly." 

Nex revenues boosted by Trump victory

Away from the UK jobs data, shares in NEX Group have dipped 3.6pc despite reporting an 11pc rise in revenue for the quarter ended December 31. Ben Martin reports: 

The electronic broking business led by Michael Spencer has been boosted by the election of Donald Trump, after the surprise result sparked frantic trading in financial markets.

Nex enjoyed an 11pc jump in revenues in the three months to the end of December on a like-for-like, constant currency basis.

At actual exchange rates revenues surged by 26pc, the company said, in what marked its first trading update since it was created following the £1.3bn merger of Tullett Prebon with ICAP's voice broking business at the end of last year.

Credit: Reuters

Mr Spencer, the firm's chief executive, put the group's robust performance down to the result of the presidential election in November, which caught many investors off guard.

"After Trump's election victory we benefited from an increase in trading activity as market participants considered the impact ofpotential policy changes on bond and foreign exchange markets," the former Conservative party treasurer said. 

"Both of our electronic platforms, BrokerTec and EBS, performed robustly under heightened volumes, providing our customers with non-stop access to liquidity." 

Read the full story here

Investec: Weaker wage data not a signal of a Brexit-related slowdown

Chris Hare, of Investec, reckons that the weakening in the wage data is probably not a signal of a Brexit-related slowdown in the economy.

"While wages were soft and employment growth modest in Q4 last year, GDP grew by +0.6pc over the same period. Alongside that, we draw optimism from the tick down in the (more timely) claimant count rate in January its joint lowest on record (2.1pc) (although the Claimant Count data come with the caveat that they are defined by the ONS as an ‘experimental statistic’ due to the inclusion of Universal Credit claimants in the measure less than two years ago)."

Barclays: Everyone’s working, no one’s earning

Andrzej Szczepaniak, of Barclays, believe weakness in nominal wage growth relative to CPI is likely to continue during the course of this year, leading to a squeeze in consumption.   

"Should nominal wage growth not pickup, real income will increasingly be under pressure over the course of 2017 and 2018 as CPI continues its ascent, leading to a consumption-driven slow down in overall activity."

Meanwhile, Resolution Foundation has published some useful charts which highlight the slowdown in wage growth: 

PwC: Pace of jobs growth has cooled suggesting businesses more cautious about hiring since Brexit vote

John Hawksworth, chief economist at PwC, thinks the cooling in the pace of jobs growth suggests that businesses have become "a bit more cautious about hiring since the Brexit vote, although not enough yet to push up the unemployment rate".

“Average earnings growth, which had been edging up in recent months, eased back slightly to 2.6pc in the fourth quarter. With wage growth relatively subdued and consumer price inflation now up to 1.8pc and set to rise further towards 3pc by the end of 2017, the healthy real earnings growth we saw in 2015 and most of 2016 could soon be a thing of the past. 

“This is likely to take the edge off consumer spending growth later this year and into 2018, which has been the main source of resilience in the UK economy since the Brexit vote.”

UK productivity weakens in fourth quarter

A separate ONS release showed that UK productivity weakened in the final quarter of 2016. 

Here are the key points from the UK productivity flash estimate for the period from October to December 2016: 

  1. Output per hour – our main measure of labour productivity – grew by 0.3pc in Quarter 4 (Oct to Dec) 2016. This is marginally slower than the 0.4pc growth rate experienced in Quarter 3 (July to Sept) 2016.
  2. The weakening of productivity growth in Quarter 4 is the result of slightly slower gross domestic product (GDP) growth, using the preliminary GDP estimate, combined with a small increase in average weekly hours worked and somewhat stronger employment, using the latest Labour Force Survey data.
  3. This flash estimate of UK productivity uses the first available information on output and labour input for the quarter. This data may be revised in subsequent months.
Credit: ONS

Pantheon Macroeconomics: Slowdown in wage growth not just due to financial sector bonuses

Samuel Tombs, of Pantheon Macroeconomics, highlights that the slowdown in wage growth is not solely down to financial sector bonsues. 

"The renewed weakening of wage growth in December is another sign that the U.K.’s period of strong, consumer-led growth is about to draw to a close. Year-over-year growth in average weekly wages fell to just 1.9% in December—the lowest rate since February—from 2.9pc in November. Admittedly, the weakness was concentrated in the financial and business services sector, where wages were 0.3pc lower than in December 2015. A sharp fall in financial sector bonuses, which are volatile from month-to-month, played a key role.  

Credit: Pantheon Macroeconomics

"Note, however, that wage growth in the financial sector excluding bonuses also slowed and that wage increases moderated in the manufacturing, retailing and public sectors too. The slowdown in wage growth, therefore, was broad based.  And with pay settlements remaining anchored at 2pc and recruitment consultants continuing to report sluggish growth in salaries for new hires, wage growth likely will remain weak over the coming months. Accordingly, the risk of a wage-price spiral developing this year that would require the MPC to hike interest rates continues to look very low."

Employment hits record high as UK firms keep on hiring 

Here's our full report on the UK jobs report by our economics correspondent Tim Wallace: 

More workers than ever before are employed in the UK as upbeat companies show few signs of worry over the state of the economy.

Employment climbed by 37,000 to 31.84m in the three months to December, while unemployment stayed steady at 1.6m - a level which has fallen by almost 100,000 over the past year as a whole.

The unemployment rate stayed at 4.8pc, its joint-lowest rate in 11 years while the employment rate hit a new record high of 74.6pc.

Female employment hit a new milestone, with more than 70pc of women in work for the first time, according to the Office for National Statistics.

Economists had feared that unemployment could start to rise if companies anticipated an economic slowdown, but there is little evidence of that so far.

Read the full story here

Proportion of jobs accounted for by services sector rises to 83.7pc

For September 2016 there were 34.59m workforce jobs, 58,000 more than for June 2016 and 529,000 more than for a year earlier. The chart below shows changes in the number of jobs by industrial sector between September 2015 and September 2016: 

Credit: ONS

Looking at a longer-term comparison, between June 1978 (when comparable records began) and September 2016:

  • the proportion of jobs accounted for by the manufacturing and mining and quarrying sectors fell from 26.4pc to 7.8pc

  • the proportion of jobs accounted for by the services sector increased from 63.2pc to 83.7pc

Read the full ONS release on UK jobs here

Non-UK nationals account for 10.9pc of British workforce

Digger a little deeper into the UK employment and earnings report, it shows that the proportion of all people working in the UK accounted for by non-UK nationals increased from 3.8pc to 10.9pc. 

Looking at the estimates by nationality, between October to December 2015 and October to December 2016:

  • UK nationals working in the UK increased by 70,000 to 28.44m

  • non-UK nationals working in the UK increased by 233,000 to 3.48m

Looking at changes in non-UK nationals working in the UK between October to December 1997 and October to December 2016:

  • the number of non-UK nationals working in the UK increased from just over 1 million to 3.48 million

  • the proportion of all people working in the UK accounted for by non-UK nationals increased from 3.8% to 10.9pc

  • this increase in non-UK nationals working in the UK reflects the admission of several new member states to the European Union (EU)

Expect real household incomes to be squeezed this year

 British workers saw their pay grow more slowly than expected at the end of last year, ahead of an expected squeeze on their living standards from higher inflation in 2017. Here's what the experts had to say: 

Howard Archer, of IHS, said: "Slowing earnings growth adds to the squeeze on consumers that is likely to increasingly weigh down increasingly on economic activity. Indeed, consumers’ purchasing power is now being markedly diluted." 

Meanwhile, Suren Thiru, Head of Economics at the British Chambers of Commerce, notes that with pay growth slowing slightly, the differential between price increases and wage growth continues to close.

"If this trend persists earnings in real terms could be squeezed, stifling consumer spending, which is an important determinant of UK growth."

Ian Kernohan, Economist at Royal London Asset Management, flags little sign of improvement in wage growth, and with inflation rising, he expects real household incomes to be squeezed this year. 

"This will have a negative impact on consumer spending and overall GDP growth, unless households choose to look through the spike in inflation and allow the proportion of money which they save to fall further.  These figures tend to support the Bank of England’s view that there is still some slack remaining in the labour market, and therefore a hike in interest rates looks unlikely.”

TUC: Lowest real pay growth in two years requires action to prevent living standards crisis

In light of slowing wage growth, TUC General Secretary Frances O’Grady thinks action is needed to prevent a living standards crisis: 

“With prices rising faster, real pay growth is now slowing down. This will be worrying for families whose have still not seen their living standards recover following the financial crisis.

“Next month’s Budget must set out a clear plan for preventing another fall in living standards. The Chancellor should tackle insecurity at work, invest in infrastructure and skills, and end the current pay restrictions on nurses, teachers and other key workers."

Pound skids to one-week low after UK wage growth slows

The pound slumped to a one-week low this morning after data from the ONS showed that British workers saw their pay grow more slowly than expected at the end of last year, ahead of an expected squeeze on their living standards from higher inflation in 2017.

It fell by as much as 0.3pc to $1.2419 against the US dollar and weakened 0.1pc against the euro to below 85p. 

Credit: Bloomberg

Reaction: Wage growth outstrips inflation (for now)

Following yesterday’s news that CPI inflation jumped to 1.8pc, today’s labour market numbers from the ONS revealed wage growth unexpectedly dipped to 2.6pc in the three months to December, from 2.8pc a month earlier.

Ben Brettell, Senior Economist, Hargreaves Lansdown, says this means real wage growth continues for now, but with inflation forecast to hit 2.8pc early next year, a deceleration in pay growth could see real wages fall at some stage.

"This would squeeze household budgets as we move through the year.

"Economists and financial institutions have repeatedly forecast the UK's unemployment rate will rise as a result of the vote to leave the EU. Yet the UK labour market continues to confound the doom-mongers with its resilience to the Brexit shock. The unemployment rate in the three months to December remained at an 11-year low of 4.8pc, and the number of unemployed people fell  by 7,000.

"The claimant count, which in a quirk of the data is a more recent figure than the unemployment rate, showed the number of people claiming out-of-work benefits fell by 42,400 in January, against expectations of a small rise. The claimant count figure is often viewed as an early warning signal of a potential economic downturn, so this surprise fall is very good news.

"This is yet more evidence that the labour market and the wider economy have fared better than expected since June’s referendum. Until it becomes clearer exactly how and when we might leave the European Union, it appears to be business as usual for the UK’s firms and employees."

A pick-up in consumer price inflation erodes growth in wages

The ONS said that workers' total earnings including bonuses rose by an annual 2.6pc in the three months to December, slowing from 2.8pc in the three months to November.

Forecasts pointed to expected wage growth of 2.8pc in the October-December period.Excluding bonuses, earnings rose by 2.6pc year-on-year against expectations for a 2.7pc rise.

Credit: ONS

Here's what the ONS had to say: 

"Average weekly earnings for employees increased by 2.6pc, both including and excluding bonuses, compared with a year earlier. The rate excluding bonuses is the highest since the 3 months to June 2015 but well below the pre-crisis average of 3.8pc experienced between 2002 and 2007.

"However, taking into account the recent pick-up in the pace of consumer price inflation, real average weekly earnings increased by 1.4pc, both including and excluding bonuses, over the year, the weakest pace of growth since the 3 months to December 2014."

UK employment report: Key charts

Here are some of the key charts from the latest UK jobs report: 

Credit: ONS
Credit: ONS
Credit: ONS

UK employment and earnings report: Key points

Here are the key points from the UK employment earnings report for the period of October to December 2016: 

  • The number of people in employment in the UK continued to grow in the 3 months ending December 2016, but the increase is smaller than the recent past.
  • The unemployment rate remains at its lowest in more than a decade.
  • The number of vacancies has remained steady since early 2015, suggesting stable labour demand.
  • Wage growth increased in the year to December but, after adjusting for inflation, the pace of real earnings growth weakens.
  • There were 31.84m people in work, 37,000 more than for July to September 2016 and 302,000 more than for a year earlier.
  • There were 23.29m people working full-time, 218,000 more than for a year earlier. There were 8.55m people working part-time, 84,000 more than for a year earlier.
  • The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.6pc, the highest since comparable records began in 1971.
  • There were 1.60m unemployed people (people not in work but seeking and available to work), little changed compared with July to September 2016 but 97,000 fewer than for a year earlier.
  • The unemployment rate was 4.8pc, down from 5.1pc for a year earlier. It has not been lower since July to September 2005. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) that were unemployed.
  • Between October to December 2015 and October to December 2016, in nominal terms, regular pay increased by 2.6pc, slightly lower than the growth rate between September to November 2015 and September to November 2016 (2.7pc).
  • Between October to December 2015 and October to December 2016, in nominal terms, total pay increased by 2.6pc, lower than the growth rate between September to November 2015 and September to November 2016 (2.8pc).

Breaking: UK earnings growth slows, employment edges back up

UK earnings growth slowed in the final quarter of 2016 and employment edged back up, data from the Office for National Statistics showed this morning. 

The unemployment rate remained unchanged at 4.8pc, while the employment rate hit its highest level on record of 74.6pc.

Between October to December 2015 and October to December 2016, in nominal terms, regular pay increased by 2.6pc, slightly lower than the growth rate between September to November 2015 and September to November 2016 (2.7pc).

 More to follow... 

UK jobs report: 'Not majorly market impactful'

Anthony Cheung, senior associate at Amplify Trading, says that today's jobs report is a lesser priority from a policy point of view given the health of this particular sector of the economy. 

In his morning briefing, he said the data will "not be majorly market impactful" as the number of Britons claiming benefits was down substantially last month. 

He also flagged that the unemployment rate in the UK has been 4.8pc for a while now, adding that this sub-5pc level means the labour market is already in better situation than it was before the financial crisis. 

The unemployment figures "very rarely deviate too much" month-to-month, quarter-to-quarter, Mr Cheung said. As such, he says the Bank of England does not need to be concerned about the labour market situation at the moment, when they are more concerned about price pressures in the economy. 

Will earnings growth show signs of slowing?

Some interesting charts from economist Rupert Seggins ahead of this morning's UK jobs report: 

Moscovici: Greek bailout review talks converging, more steps needed

European Commissioner for Economic and Financial Affairs Pierre Moscovici said Greece's talks with its official lenders on concluding a bailout review have made progress but more steps are needed to wrap it up.

Moscovici is in Athens to help close a review of Greek reforms which has dragged on for months.

"There is convergence at certain points so that we can conclude the review and move ahead," he told reporters before a meeting with Greek Finance Minister Euclid Tsakalotos. "Some more small steps remain."

Report from Reuters

FTSE 250 index hits new all-time high

The FTSE 250 has hit a new record high in early trade, rising by as much as 0.3pc to 18,847.76.

If the mid-cap index manages to hold on to its gains and close in positive territory, it will mark its seventh consecutive closing high. 

That's its longest run since February 2015, when the FTSE 250 closed at a record peak for nine successive days in a row. 

Analysts preview UK jobs report

Ahead of the release of the UK unemployment and earnings report at 9.30am this morning, here's what the experts had to say: 

Simon French, of Panmure Gordon, said: "The UK labour market continues to shrug off policy-led headwinds and Brexit uncertainty and nothing we have yet seen from recruiter surveys, vacancy rates or hiring intentions surveys suggest a reversal to this trend. While this is a difficult microeconomic story as real wages face up to a decline during H2 2017 – our view is that the flexibility of the UK labour force to absorb the decline in sterling through real wage compression is supportive for UK growth."

He also expects nominal pay awards to remain below 3pc for the rest of this year, adding that the transmission from higher inflation into wage increases in the UK remains weak as bargaining power remains muted and public sector austerity continues into the next Parliament.

"Sectoral spikes in construction and technology wages mask the weak inflation dynamics across much of the broader economy." 

Following yesterday's jump in UK inflation, Connor Campbell, of SpreadEx, thinks the most talked about figure today will be the wage growth reading, which is set to remain unchanged at 2.8pc.

"That’s all well and good for now, but given that UK inflation could hit 3pc at some point in the second half of 2017 growth needs to pick up to avoid severely pinched pockets across the country. Elsewhere the unemployment rate is set to come in at 4.8pc for the fourth month in a row, while the claimant count change is expected to jump up to 1.1k having seen a surprising 10.1k drop in December."

Elsewhere, Naeem Aslam, of Think Markets, reckons it is important in this context that wages are keeping up with inflation.

"We need to see the slack in the UK's economy diminishing and this could just push the wage number to 3pc. The expectations are that the average earnings will stay put." 

FTSE 100 smashes 7,300 as banks rally

The FTSE 100 smashed the 7,300 barrier to a one month high as banking stocks rallied in early trade. European bourses also opened higher buoyed by robust corporate results and banking stocks. 

Banking stocks were helped by hawkish rhetoric from Fed chair Janet Yellen yesterday, who said that the US central bank will likely need to raise interest rates at an upcoming meeting. Low interest rates put pressure on banks' margins. 

Here's a snapshot of the state of play in Europe: 

Credit: Reuters

 Mike van Dulken, of Accendo Markets, said: "Calls for a strong European open come after US bourses recorded solid gains which Asian counterparts have built on, even outperforming overnight. Bullishness stems from hawkish testimony by Janet Yellen, Chair of the US central bank (Federal Reserve) giving a fillip to a key financial sector whose profitability benefits from higher interest rates.

"Her boost to the USD has resulted in the EUR falling lower and kept GBP under pressure to the benefit of both the DAX and FTSE respectively, even if she caveated her rate-rise prepping chat (markets see March as a possibility, pricing in June as a given) with uncertainty for the US economy about how government policy pans out." 

Trump rally pushes Goldman Sachs to record high as Buffett shares smash through $250,000 mark

The exuberant 'Trump trade' continued on Wall Street yesterday, with Goldman Sachs scaling record peaks and all three major indices touching new record highs. Our economics correspondent Szu Ping Chan reports: 

Goldman Sachs shares closed at a record high last night as expectations of higher interest rates and optimism about Donald Trump’s pledge to reverse costly regulation lifted bank stocks.

Shares in the Wall Street giant finished up 1.3pc, at $249.46, eclipsing the pre-crisis record of $247.92 set in October 2007.

The rise followed comments by Janet Yellen, the chairman of the Federal Reserve, that the strength of the world’s biggest economy was likely to prompt further interest rate rises this year.

The US President’s pledge to slash corporate taxes, roll back regulation and embark on an infrastructure spending spree has driven a stock market rally following his victory last November.

Goldman shares alone have climbed 37pc since the November 8 election.

Bank of America closed up 2.97pc on Tuesday, while JP Morgan ended up 1.6pc. The S&P 500 index finished up 0.4pc, at 2,337.58.

Holders of Warren Buffett’s Berkshire Hathaway “A” shares saw them smash through the $250,000 mark for the first time. 

​Read the full story here

Agenda: Investors eye UK wage growth

Good morning and welcome to our markets coverage. 

Overnight, Asian stocks scaled 19-month peaks after Fed chair Janet Yellen flagged a possible interest rate rise next month, propelling the dollar index towards a three-week high and Wall Street to record highs.

Today, focus shifts to the UK labour market after inflation jumped 1.8pc last month. Average earnings are expected to remain steady at 2.7pc for the three months to December, while the ILO unemployment data up until December is also expected to remain steady at 4.8pc.

Previewing the economic data release, Michael Hewson, of CMC Markets, said: "Today we get a look at the health of the UK labour market as well as the resilience of the latest wages data. With inflationary pressures starting to catch alight it is especially important that wages data keeps up, having been running ahead of inflation since mid-2014.

"In its most recent inflation report the Bank of England suggested that the long term equilibrium unemployment rate was actually at a much lower rate of 4.5pc, hence the lack of traction in wage growth. Whether this is accurate or not the amount of slack in the UK economy will determine whether or not wages start to push up to the 3pc level in the coming months."

Also on the agenda: 

Interim results: Hargreaves Services

Trading update: QinetiQ Group, Knot Offshore Partners, NEX Group

AGM: Titon Holdings

Economics: Unemployment rate (UK), claimant count change (UK), average earnings index 3m/y (UK), retail sales m/m (US), empire state manufacturing index (US), CPI m/m (US), capacity utilisation rate (US), industrial production m/m (US), business inventories m/m (US), trade balance (EU)

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