UK unemployment reaches highest level for two years

The economic fallout from the coronavirus pandemic is continuing to emerge in the UK, with new figures showing that unemployment has risen to its highest level for two years.

In the three months to July the UK unemployment rate grew to 4.1%, representing about 1.4 million people out of work, according to the Office for National Statistics (ONS). This is 104,000 more than a year earlier and 62,000 more than the previous quarter.

Young people were particularly hard hit, with the biggest drop in employment seen among those aged 16 to 24.

The monthly report also shows that redundancies increased by 58,000 on the year and 48,000 on the quarter to 156,000 — the fastest rise since the financial crisis.

It comes as businesses are preparing for the end of the furlough scheme, which has helped 9.6 million people retain their jobs during lockdown and prevented a sharper rise in unemployment so far.

Under the Coronavirus Job Retention Scheme, the UK Government initially paid 80% of people’s wages. This was reduced to 70% at the start of September, with employers expected to make up the remainder of pay, and the scheme is scheduled to end altogether on 31 October.

Chancellor Rishi Sunak has ruled out extending the scheme past the end of next month.

Commenting on the latest figures, ONS director of economic statistics Darren Morgan said that as parts of the economy reopened in July, fewer workers were on furlough and there was a rise in average hours worked.

However, he added, “with the number of employees on the payroll down again in August and both unemployment and redundancies sharply up in July, it is clear that coronavirus is still having a big impact on the world of work.”

UK manufacturing industry calls for furlough scheme to be extended

Manufacturers have urged the UK Government to extend its Covid-19 furlough scheme, warning that the country risks being left in the “slow lane” behind major competitors in recovering from the pandemic.

Industry association Make UK wants to see the Coronavirus Job Retention Scheme continued beyond October for critical, strategic industrial sectors.

It highlighted the aerospace and automotive sectors as being particularly in need of an extension.

“These sectors are at the cutting edge of technologies which will be vital to growth sectors of the future employing many highly skilled, well paid people across the UK,” the organisation said.

“New analysis of official data by Make UK backs this up with the two sectors being the largest investors in research & development, accounting for more than two thirds of the total spend (36.4%). This is worth £5.9bn to the UK economy.”

Germany, Belgium, Australia and France have all extended or introduced new wage support schemes.

“The protection of key skills should be a strategic national priority as this will be the first building block in getting the economy up and running,” argued Stephen Phipson, chief executive of Make UK.

The industry group’s latest Manufacturing Monitor survey provides some signs of an improvement in business conditions.

Almost a fifth of the 226 companies surveyed between 24 August and 1 September are now at full operating levels (17.6%) while a further 28% are running at between three quarters and full capacity.

By the start of next year, over a quarter (27%) expect to be at full capacity and a further third (35.4%) expect to be between three quarters and full capacity.

Housing price slowdown in Q1 2019

The Halifax survey of British house price growth shows a slowdown in the first quarter of 2019 in annual terms and a subdued outlook, according to Reuters.

Uncertainty about Brexit and high property prices were cited as key factors behind the trend. Compared to the same period in 2018, prices rose by 2.6% whereas the three months to February showed a 2.8% rise.

A Reuters poll of economists indicated an annual rise of 2.3% could be expected for the first quarter. A recent Nationwide mortgage lender survey found house prices had increased somewhat.

The housing market in London is particularly weak, with Brexit uncertainty poised to have a particularly strong impact in the capital. Shortly before the 2016 referendum house prices were rising by around 10% per year.

Halifax says that in March, in monthly terms prices were falling by 1.6% after a 6.0% increase in February. Halifax’s index has tended to show a more marked variance than other polls in recent times.

FCA floats basic savings rate plan

The Financial Conduct Authority (FCA) has proposed a minimum interest rate for savings accounts to improve returns for loyal savers, according to BBC News.

The FCA has said savers who stay with the same bank or building society for a long time are sometimes penalised by being given poor rates. Some banks pay only 0.05% on instant access accounts.

A Basic Savings Rate (BSR) would apply to all easy access ISA cash products and savings account, applies once the account had been open for a set period, for example one year.

Christopher Woolard, executive director of strategy and competition at the FCA said: “Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.”

Citizens Advice estimates that customers lose around £48 a year by now switching accounts.

The FCA has proposed that banks would set their own BSR, which would be featured prominently on their site and materials, allowing consumers to compare rates more easily.

The FCA has attempted to address the problem before, by encouraging customers to shop around and asking banks to share information about how to switch accounts. It has also named and shamed the brands paying the lowest rates, but the problem remains.

Hot weather could worsen Brexit-related food shortages

The prolonged hot weather in the UK could impact food supplies later in the year, worsening the impact of any disruption caused by a no-deal Brexit, according to the Food and Drink Federation (FDF).

There is still no certainty about the nation’s trading relationships following Brexit, which is due to take place in March 2019.

Ian Wright, director general of the FDF, said on BBC radio: “We’re going through the most extraordinary summer and we’re already seeing farmers struggling with crops, with feed for ruminants (Cattle and sheep). There are vegetable shortages because there hasn’t been enough rain.”

Brexit-related disruption to food imports and border crossings could exacerbate the situation, according to Wright.

Brexit Secretary Dominic Raab indicated the government is making preparations to ensure a stable supply of food in the event of disruption. Around 40% of food eaten in Britain is imported, mostly either from or through the EU.

Raab said: “Those businesses importing food, ingredients and finished goods will need to get their goods across the border before March 29 to ensure they don’t suffer disruption from customs changes.”

Supermarkets struggle amid CO2 shortage

A shortage of carbon dioxide is causing problems in the food retail sector, according to BBC News.

The gas is used to carbonate drinks and is also deployed to stun animals prior to slaughter. A shortage of CO2 is impacting the supply of beer, soft drinks and meat to supermarkets.

The Food and Drink Federation chairman Ian Wright has said supplies are not expected to return to normal for one week, and in the meantime “choice will be eroded.”

Wright said: “We will see fewer chicken dishes, fewer pork and bacon dishes. We’ll see probably less carbonated drinks and certainly bakery and other things that benefit from what’s called modified atmosphere packaging, which is plastic packaging with a tray underneath and a dish of food in them.”

Baking brand Warburton’s has blamed the gas shortage for halting production at two of its four plants, while a number of other companies have admitted their production has been disrupted.

The British Retail Consortium said: “We are aware of specific pressures in some areas such as carbonated soft drinks, beer, British chicken and British pork but the majority of food products are unaffected and retailers do not anticipate food shortages. However, it is likely that the mix of products available may be affected.”

A spokesperson for the Department for Environment, Food and Rural Affairs said: “They said: “We have been assured CO2 producers are working as fast as they can to get plants up and running again, with CO2 production set to start very shortly.”

Costa sees sales fall 2% on 2017

Costa coffee has reported a 2% fall in sales compared to 2017 for the first quarter of 2018, according to BBC News.

The coffee chain said total UK sales were up 5.2% following the opening of new stores, but like-for-like sales were down.

Parent group Whitbread pledged in April to demerge Costa from the group. Early morning trading in London saw the company shares rise 1% to £39.36.

Whitbread head Alison Brittain said: “Our stores remain highly profitable and deliver an excellent return on capital.”

A statement from the company said: “The UK like-for-like sales decline resulted principally from footfall weakness in traditional shopping locations, whereas travel locations continued to show good growth.”

Recent months have seen a number of well-known UK chains struggle to cope with challenging economic circumstances and online competition. Brands including Marks & Spencer, House of Fraser, Mothercare, New Look, Byron, Jamie’s Italian and Prezzo have announced plans to close stores.

Companies Maplin, Poundworld and Toys R Us have entered administration.

UK house prices rise at slowest rate in five years

House prices rose at their slowest annual rate for five years this month, according to figures from Nationwide reported by Reuters.

The mortgage lender said the slowdown was linked to relatively low economic growth and pressure on household spending. UK house prices were 2.0 percent higher in June 2018 than June 2017, a reduction from May’s 2.7 percent rate.

The slowdown is the largest falling off in five years but still lower than a recent 1.7 percent predicted in a Reuters poll. June saw prices rising 0.5% compared to a predicted 0.3% rise.

Nationwide economist Robert Gardner said: “There are few signs of an imminent change. Surveyors continue to report subdued levels of new buyer enquiries, while the supply of properties on the market remains more of a trickle than a torrent.”

Nationwide said it expected house price rises to slow by 1 percent in 2018 as whole. Economists expect the Bank of England to raise interest rates by 0.25% to 0.75% in August, the second increase since the global financial crisis.

Brexit bill underestimated by £10bn plus, says Committee

A parliamentary committee has said that the government has underestimated the payment to be made to the European Union following Brexit by at least £10bn, according to Reuters.

Negotiations between the UK and EU have settled on a payment of between £35bn and £39bn to discharge ongoing liabilities, to be spread over the next few decades. The issue has been a political hot potato, with Brexit campaigners claiming the UK should not make any payment at all.

The Public Accounts Committee said the figure was an underestimate of the actual cost to the public and that the government needed to be more transparent.

Chairwoman Meg Hillier said: “The true cost of Brexit is a matter of outstanding public interest. Government must provide parliament and the public with clear and unambiguous information.”

Hillier continued: “Government’s narrow estimate of the so-called divorce bill does not meet this description. It omits at least 10 billion of anticipated costs with EU withdrawal and remains subject to many uncertainties.”

For example, the headline divorce bill figure does not include £3bn in payments to the European Development Fund, which provides overseas aid. The Prime Minister has confirmed that Britain will honour its commitments to the fund.

A Treasury spokesperson said: “The National Audit Office confirmed in April that our estimated figure is a reasonable calculation. Now we are discussing what our future relationship looks like.”

Lloyds to cut back office staff, invest in tech

Lloyds Banking Group has announced plans to cut 450 back-office jobs in the latest attempt to cut costs and focus on digital initiatives, according to Reuters.

The group has said it will create 255 new roles at the same time, part of a $3.95bn investment in developing the bank’s technological capabilities. The net job loss will be 195.

Earlier in 2018 Lloyds announced the loss of 930 jobs from the central office and hundreds of cuts and closures of branches. The bank is facing sharp competition from industry disruptors who keep costs low through using low-cost tech and online platforms.

The decision to cut branch numbers has proven controversial with customers and politicians, who say the impact on staff and certain categories of customer is excessive.

A Lloyds spokeswoman said: “Today’s announcement involves making difficult decisions, and we are committed to working through these changes in a careful and sensitive way.”