The Independent

Unemployme­nt unchanged but inflation hits pay growth

Silicon Valley Bank collapse could provide a useful lesson


Unemployme­nt in the UK has not changed despite a fall in job vacancies and a rise in redundanci­es, new figures have revealed.

The Office for National Statistics said Britain’s unemployme­nt rate held at 3.7 per cent in the three months to January, remaining the same as the previous three months. However, the

data revealed a 51,000 drop in the number of job vacancies to 1.2 million, while the redundancy rate edged higher.

Figures also showed there were 220,000 days lost to strike action in January, down from 822,000 in December, with schools the hardest hit. Real regular pay fell by 3.5 per cent with Consumer Prices Index inflation taken into account, despite declining inflation and a 6.5 per cent increase in regular wages, excluding bonuses.

Although, this was slower than the 6.7 per cent rise in the previous three months. Darren Morgan, director of economic statistics at the Office for National Statistics, said: “Recent trends have continued, with a slight rise in employment, especially among part-timers. Detailed figures from our business surveys also show record numbers of jobs in several sectors, including law and accountanc­y firms, health, and pubs and restaurant­s.

“In addition, the number of people neither working nor looking for a job fell overall, driven by a drop in young people. However, a record number of people were completely outside the labour market due to long-term sickness. Although the inflation rate has come down a little, it’s still outstrippi­ng earnings growth, meaning real pay continues to fall.”

Chancellor Jeremy Hunt said: “The jobs market remains strong, but inflation remains too high. To help people’s wages go further, we need to stick to our plan to halve inflation this year. Tomorrow at the Budget, I will set out how we will go further to bear down on inflation, reduce debt and grow the economy, including by helping more people back into work.”

Guy Opperman, minister for employment, said: “We’ve promised to grow the economy in order to create more well-paid jobs, and we want everyone to have the same opportunit­y for a fulfilling work life. That’s why we’re focused on tackling inactivity, and it is encouragin­g to see even more people moving into jobs or taking steps to search for work.

“We are always looking at new ways to support people, including changes we’ve made to universal credit such as cutting the taper rate, increasing work allowances and bringing hundreds of thousands more claimants into closer contact with work coaches to boost their long-term prospects.”

Jonathan Ashworth, Labour’s shadow work and pensions secretary, said: “The Tories’ abject failure to support people back to work means there are 234,000 fewer people in employment than before the pandemic. While other major economies have bounced back, Britain is languishin­g under the Tories – and families are paying the price.”

Just what we needed right now: another banking crisis. But after the bloodbath at the beginning of the week, a rally quickly got underway. Regional banks in the United States – in real danger

of experienci­ng a run on their deposits while larger rivals benefit from inflows – found some support.

Perhaps Wall Street’s nail-biters had worked out that the doomed Silicon Valley Bank (SVB) had a rather unique financial and client structure. Ditto New York-based lender Signature, which shut down over the weekend. Interventi­ons by the US Federal Reserve do seem to have helped calm nerves.

An unequivoca­l win is that there appears to be little evidence of any contagion spreading on this side of the Atlantic. The Bank of England brokered a rescue of SVB’s UK arm, now in the hands of HSBC. Charlie Nunn, the CEO of Lloyds, meanwhile said he had seen no signs of the “flight to quality” seen in America from depositors on these shores when he spoke at a Morgan Stanley event.

He did add a note of caution: “Let’s see how that plays out and we’ll see how people feel over the next period of time”. But that was perhaps understand­able given this is a developing situation; he wouldn’t want to get caught in the Michael Fish effect. But even the perenniall­y crisis-wracked Credit Suisse – under the cosh from regulators, in the midst of a mess of its own over weak internal controls – claimed inflows from depositors.

It didn’t hurt that US inflation came in as expected at 6 per cent, down from 6.4 per cent the previous month. There really wasn’t much to celebrate given that consumer prices rose month on month and core inflation, which strips out volatile components such as food and fuel, is proving difficult to shake off for the Fed; but the markets like it when forecaster­s get it more or less right for a change.

So is the worst over? Let’s see how this plays out. One welcome developmen­t is the questions now being asked about regulation in the US. This affair has cast a terrible light on the Trump administra­tion’s easing of post-2008 rules on medium-sized banks, at Wall Street’s behest; where was the supervisio­n of SVB?

Bills to address the situation have been promised, but they will struggle to get past a divided Congress. The Biden

administra­tion has been flexing its muscles, as it needs to. Even if this episode proves to be more squall than storm, it is a lesson on the risks of reduced regulation. The Fed is not out of the woods. Next week’s interest rate decision, and especially the accompanyi­ng comments, will be watched very closely.

In the wake of its interventi­ons, including the guaranteei­ng of funds for very wealthy SVB depositors, there is also the question of “moral hazard” – the danger of allowing financial institutio­ns and their backers to feel shielded from the consequenc­es of their actions. It is somewhat helpful that SVB’s chief executive and chief financial officer are facing investor lawsuits.

After 2008, we hoped to hear nothing more of “moral hazard”, “liquidity” and “central bank interventi­ons”. Their return should be a wake-up call. If the emerging calm holds, SVB’s demise may have been a useful lesson.

The total value of new mortgages fell by about a third (33.5 per cent) in the fourth quarter of 2022, compared with the previous three months, Bank of England figures have shown. The £58.4bn worth of lending agreed to be advanced in the coming months was also about a quarter (24.5 per cent) less than a year earlier, according to the mortgage lenders and administra­tor statistics. Increases in the Bank of England base rate have been pushing up borrowing costs generally. Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Mortgage

approvals dropped like a stone at the end of 2022, after the miniBudget sent rates soaring, and sent would-be buyers scurrying back into their own homes.”

 ?? (PA) ?? The chance ll or says the jobs market remains strong, despite a 3.5% drop in rea l wages
(PA) The chance ll or says the jobs market remains strong, despite a 3.5% drop in rea l wages
 ?? (PA) ?? Jeremy Hunt says inf l ation remains too high
(PA) Jeremy Hunt says inf l ation remains too high
 ?? ?? Financia l markets started to ra ll y as investors hoped interventi­ons by the US Federal Reserve had a ll ayed fears of another banking crisis (AP)
Financia l markets started to ra ll y as investors hoped interventi­ons by the US Federal Reserve had a ll ayed fears of another banking crisis (AP)
 ?? ?? Kwasi Kwarteng’s disastrous mini - Budget has seen approva l s ‘drop l ike a stone’ (PA)
Kwasi Kwarteng’s disastrous mini - Budget has seen approva l s ‘drop l ike a stone’ (PA)

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