Afternoon summary
Time for a recap:
UK government borrowing costs have risen above the levels hit during Liz Truss’s disastrous premiership, after stronger than expected jobs and pay figures reinforced expectations that the Bank of England will raise interest rates next week.
Two-year gilt yields – the interest rate on short-term UK government borrowing – increased by more than 0.2 percentage points to 4.83% today, surpassing the level reached in the aftermath of Truss’s ill-fated mini budget. Yields are also the highest since the 2008 financial crisis.
Short dated UK gilt yields just exceeded those reached during the Trussonomics/mini-Budget episode of last year... pic.twitter.com/a3qREJkJ40
— Bond Vigilantes (@bondvigilantes) June 13, 2023
It comes after figures from the Office for National Statistics showed growth in average regular pay, excluding bonuses, strengthened to 7.2% in the three months to April – the highest level on record, excluding the Covid pandemic.
But although wages rose, they still lagged behind inflation.
Today’s jobs report also showed a drop in vacancies, and a worrying rise in people long-term sick, to record levels.
The rise in borrowing costs will put more pressure on mortgage lenders to lift their rates, with Skipton building society planning to raise the cost of its no-deposit 100% mortgage for first-time buyers on Friday.
The gap between UK and German government borrowing costs also widened sharply today.
City traders believe the Bank of England is certain to raise interest rates again next week – the money markets indicate a quarter-point hike, to 4.75%, is a 70% chance, with a 30% possibility of a larger, half-point rise to 5%.
The newest Bank of England interest rate setter, Megan Greene, has warned MPs that it will be tough to return inflation to the UK’s 2% target, from the 8.7% rate recorded in April.
She told the Treasury Committee:
“I think that there is some underlying persistence and so getting from 10% to 5% ... is probably easier than getting from 5% to 2%.”
Over in the US, inflation slowed to 4% in May, boosting hopes that the US Federal Reserve might leave interest rates on hold tomorrow.
Elsewhere today…
It has emerged that less than a third of the Confederation of British Industry’s remaining members backed the business lobby group at last week’s crunch vote on its survival.
The confidence vote followed a series of sexual misconduct allegations that prompted several companies including John Lewis and NatWest to terminate their membership of the CBI.
The revelation of the low turnout at such a critical vote emerged as leaders from the group gave evidence to MPs on the business and trade select committee on Tuesday, as parliament weighs its links with the body.
The CBI’s director-general, Rain Newson-Smith, also declined to tell MPs how many members the group had lost since the scandal broke, but insisted she was very confident it could recover from the crisis.
Odey Asset Management’s board has decided to close the Odey Swan Fund, in the wake of sexual misconduct allegations against its founder Crispin Odey, with JP Morgan cutting ties with the hedge fund.
Shareholders in British Gas owner Centrica have approved its chief executive’s £4.5m pay packet, which had been labelled a “slap in the face” to struggling bill payers, at the company’s annual meeting in Leeds.
The company said that 93% of votes were cast in favour of approving Chris O’Shea’s remuneration, despite controversy over the prepayment meter scandal and ballooning profits made by energy firms during the cost of living crisis.
An ad campaign by Anglian Water extolling how it cleans water by creating wildlife-friendly wetlands has been banned for not telling consumers about its history of releasing sewage into the environment.
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Wall Street opens higher
The US stock market has opened higher, on relief that US inflation fell in May.
The Dow Jones industrial average, of 30 large US companies, has gained 69.2 points or 0.2% to34,135.59 points in early trading.
The broader S&P 500 has gained 0.4%, with the tech-focused Nasdaq gaining 0.7%, taking both indices to fresh one-year highs today.
Last month’s slowdown in consumer prices is cementing expectations that the Federal Reserve could skip raising interest rates, when its two-day meeting finishes tomorrow.
In London, the FTSE 100 index has gained 0.25%, with mining companies among the risers. But shares in housebuilders have dropped, as traders anticipate further UK interest rate rises.
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