Closing summary
Thank you for following today’s business live blog, focusing on the Post Office Horizon inquiry. It will be closing shortly but you can follow our latest business news articles and features here and reports on the Post Office Horizon scandal here.
Here is a brief summary of the day’s key events:
Former postal affairs minister Ed Davey has said he would have “acted differently” if the “Post Office had told the truth”. In his witness statement to the Horizon IT inquiry, he said: “As I have stated publicly, I believe I was seriously misled by the Post Office. I do not know if one or more civil servants misled me during my time as a minister, or if they were themselves misled by the Post Office. I hope the inquiry can shed light on this. However, if I had known then what we all know now – if the Post Office had told the truth – of course I would have acted differently.” He also apologised to Sir Alan Bates for declining a meeting with him in May 2010.
The government will lay out its plan for compensating post office operators affected by the Horizon scandal this month. Business and trade minister Justin Madders said in the House of Commons on Thursday that the government would be outlining this by the end of July.
The cabinet minister Pat McFadden has told the inquiry into the Horizon IT scandal that he now wishes he had questioned the Post Office more over its “emphatic” defence of its flawed accounting software. The Labour MP, a former postal affairs minister who is now chancellor of the duchy of Lancaster, said “wrong” information on the Horizon system has had “terrible human consequences”. He also said that ministers “took no part in the decision to prosecute” post office operators by the Post Office.
Former post office operator Mark Kelly, who was falsely accused of stealing money from his post office in Swansea, said Ed Davey “should have done more” during his time as minister for postal affairs. Speaking outside the inquiry room on Thursday, Kelly told the PA news agency: “He should have asked why (the number of prosecutions) jumped up so high. He was taking the easy way out as a minister and not looking too much, just taking civil servants as gospel.”
UK wage growth slowed in May to the lowest level in two years amid a cooling jobs market, underscoring the challenge for the Bank of England as policymakers decide whether to cut interest rates.
Global chip stocks tumbled, with the Dutch company ASML, US firm Nvidia and Taiwan’s TSMC hit by reports of tighter export restrictions from the US and remarks from Donald Trump.
Former subpostmaster Mark Kelly, who was falsely accused of stealing money from his post office in Swansea, said Ed Davey “should have done more” during his time as minister for postal affairs.
Speaking outside the inquiry room on Thursday, Kelly told the PA news agency:
He should have asked why (the number of prosecutions) jumped up so high. He was taking the easy way out as a minister and not looking too much, just taking civil servants as gospel.
He could and should have done more.”
Kelly also criticised Davey for his sunt-heavy style of campaigning in the run-up to this year’s election. He said: “It was quite offensive given what was coming up to today. It felt like a big joke.”
Government to announce plan for Post Office Horizon compensation in July
The government will lay out its plan for compensating subpostmasters affected by the Horizon scandal this month.
Business and trade minister Justin Madders said in the House of Commons on Thursday that the government would be outlining this by the end of July.
He said: “We intend to work cross-party, we believe that there’s absolutely no reason why that should not continue, because we absolutely agree the importance of delivering fast and fair compensation is at the heart of what we are all trying to achieve here.
“We will be making a statement by the end of the July.”
Madders said the statement would be made “by the end of summer recess”, but the Department for Business and Trade later confirmed that this was a slip of the tongue and he had meant to say “before summer recess starts”.
Davey added the Post Office being mutualised would enable post office operators to be in control.
He added we need to find ways to strengthen them and build trust in the institution, adding he “legislated for mutulisation and hopes it will be taken forward”.
Updated
Davey told the inquiry that one of the issues that arises from this “tragedy” is how the executive arm of the government department oversees arm’s length bodies.
He said the lessons from this situation is “we need to go even further and governance should look at all arm’s length bodies to ensure the governance is appropriate and the oversight is genuine, real and thorough.”
Updated
The day so far
The cabinet minister Pat McFadden has told the inquiry into the Horizon IT scandal that he now wishes he had questioned the Post Office more over its “emphatic” defence of its flawed accounting software.
The Labour MP, a former postal affairs minister who is now chancellor of the duchy of Lancaster after helping mastermind Keir Starmer’s election victory, said “wrong” information on the Horizon system has had “terrible human consequences”.
The inquiry has heard months of evidence into the wrongful prosecution of hundreds of post office operators on the basis of false data from Horizon. It called McFadden on Thursday because of his role in the last Labour government as a junior minister with oversight of the Post Office.
McFadden told the inquiry that ministers had no part in overseeing the Post Office’s prosecutions of post office operators, but acknowledged that he wished he had challenged those in charge at the state-owned body who insisted Horizon was robust when concerns were first raised.
Lib Dem leader Ed Davey, who was postal minister between May 2010 and February 2012, told the inquiry that he would have “acted differently” if the “Post Office had told the truth”. He also apologised to Sir Alan Bates for declining a meeting with him in May 2010.
UK wage growth slowed in May to the lowest level in two years amid a cooling jobs market, underscoring the challenge for the Bank of England as policymakers decide whether to cut interest rates.
Figures from the Office for National Statistics (ONS) show annual pay growth eased from 5.9% in the three months to April to 5.7% in the three months to May, matching City economists’ predictions.
Unemployment was unchanged from 4.4% in April, while the number of job vacancies fell by 30,000 led by dwindling demand in retail and hospitality amid a continued slowdown in hiring across the economy.
After a sharp fall in headline inflation over recent months, real wage growth taking into account the rising cost of living has strengthened. Total real pay, including bonuses, rose by 3% on the year in the three months to May. Growth was last higher in the three months to August 2021, when it was 4.5%.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Take care! – JK
Updated
The inquiry has heard that Priti Patel tried to arrange a meeting with former minister for postal affairs Ed Davey in 2010 about concerns regarding one of her constituents having issues with the Horizon IT system.
A letter addressed to the then secretary of state asked if a meeting could be set up with the incoming postal minister (Davey). It is dated one day before Alan Bates’s letter.
Davey said the letter was not brought to his attention, though it probably should have been, and he was not aware she was “seeking a meeting”.
Ed Davey is shown a letter from Alan Bates on 20 May 2010, the day he took up his role as postal affairs minister, where Bates presents the issues and asks for a meeting. Bates said he was part of a group of close to 100 subpostmasters who “have found that there is nowhere else to turn for help”. He wrote:
In every instance the Post Office acts as a judge, jury and executioner and the individual is deserted by their reputedly representative organisation, the National Federation of Subpostmasters.
The inquiry is then shown Davey’s short response (less than half a page).
He agrees that it is a “terse reply” but insists that he does not remember reading Bates’ first letter, and may have just signed his response without seeing the original letter.
I do not remember reading his first letter. I remember the second letter ... I have apologised and I repeat that apology for not meeting Mr Bates on the basis of his first letter.
In his written statement to the inquiry, Davey denied meeting Bates eventually for presentational reasons.
As far as I can remember, that briefing - long after the meeting had been arranged - was the first time that ‘presentational reasons’ for the meeting were mentioned to me.
They were certainly not the reason I decided to meet Sir Alan Bates following his second letter.
As set out above, I told officials I wanted to meet him because I could see he was cross at my initial response and wanted to hear his concerns directly.
Updated
Ed Davey: I would have 'acted differently' if 'Post Office had told the truth'
Former postal affairs minister Ed Davey has said he would have “acted differently” if the “Post Office had told the truth”.
In his witness statement to the Horizon IT inquiry, he said:
With all issues in such a busy portfolio, you had to be able to rely on the advice of civil servants, and you were not in a position to dig into the detail of every question that came across your desk.
As I have stated publicly, I believe I was seriously misled by the Post Office. I do not know if one or more civil servants misled me during my time as a minister, or if they were themselves misled by the Post Office. I hope the inquiry can shed light on this.
However, if I had known then what we all know now - if the Post Office had told the truth - of course I would have acted differently.
Asked about this by Jason Beers KC, counsel to the inquiry, Davey said:
Yes, I now know I was being lied to. I follow this inquiry, and it’s pretty clear what they told my officials was not true.
Asked which executives had lied to him and his officials, Davey said:
The senior executives I dealt with were David Smith and then Paula Vennells. There may have been one or two others…. And they were the ones giving the information to my officials and to me. So they were the people passing information which was untrue.
Smith was the Post Office’s managing director between April and December 2010, and Vennells was chief executive of the Post Office from 2012 to 2019.
Updated
Ed Davey apologises to Bates for declining meeting
Back to the Horizon inquiry.
Ed Davey said he was “deeply sorry for the individuals and families who have had their lives ruined” by the scandal, and that it took him five months to meet Sir Alan Bates, the subpostmaster who spearheaded a campaign for justice. The Liberal Democrats leader was postal affairs minister between 2010 and 2012.
He apologised to Bates for declining a meeting with him in May 2010 and saying “I do not believe a meeting would serve any useful purpose”.
He said in his written submission to the inquiry:
The Post Office Horizon scandal is the greatest miscarriage of justice of our time, and I am deeply sorry for the individuals and families who have had their lives ruined by it.
As one of the ministers over the 20 years of this scandal who had postal affairs as part of my ministerial responsibilities, I am sorry that it took me five months to meet Sir Alan Bates, the man who has done so much to uncover all this, and that I did not see through the Post Office’s lies when I and my officials raised his concerns with them.
Davey also said that he was not aware that the Post Office and Royal Mail Group themselves investigated, prosecuted and obtained convictions against sub postmasters. Some people in the room shook their heads when this was read out by Jason Beers KC.
Davey told the inquiry:
If I had known about it [the private prosecutions] I would have been surprised... It seems quite an old fashioned thing to do.
Now we know that it was wrong and it seems that power should be taken away. I wasn’t aware and it seems odd that they were.
Updated
ECB keeps interest rates unchanged
In other news, the European Central Bank has held interest rates unchanged, as expected. President Christine Lagarde will explain the bank’s thinking behind the decision in a press conference in half an hour, and markets will be hoping for clues on when the next rate cut might come – possibly in September?
The ECB became one of the first major central banks to reduce interest rates, cutting its three key rates by a quarter point in June.
Updated
The former postal affairs minister Pat McFadden also told the Horizon IT inquiry he does not believe making ministers “shadow chief executives” to prevent the bosses of state-owned companies going “rogue” would work in practice.
I’m not sure in practice, given the number of arm’s length bodies there are, that ministers really can act as shadow chief executives of them.
Which begs the question ‘what do you do when one goes rogue? - if it’s not a minister sitting on a chief executive’s shoulder, what is it?
I wonder if it’s worth considering some sort of body that’s established to do precisely this, that can be called in to launch an inquiry or take action when the level of allegations reaches such a point that it looks like that is the right thing to do.
This is a live and real policy question which has been exposed by this scandal and I’m glad you’re considering it going forward but I’m not sure making ministers shadow chief executives is going to be the practical way to do this.
Pat McFadden has also said that he is unsure when “blind faith” from the Post Office in its IT system turned into something “more sinister where people are just not telling the truth.”
He told the Horizon IT inquiry:
My reflection on this after all these years is clearly those responses were wrong.
The evidence being used in the court to prosecute the subpostmasters has turned out to be wrong and was proven to be wrong in the cases that overturned these judgments many years later.
What I’m not clear about is in what point in this story does blind faith from the Post Office in their IT system turn into something more sinister where people are just not telling the truth.
Now I don’t know at what point that happens but it’s something I’m sure the inquiry will want to get to the bottom of.
McFadden says he wishes he had challenged Post Office more, but it gave 'emphatic defence' of Horizon system
A lot of the pre-lunch questioning of Pat McFadden, a former postal affairs minister who ran Labour’s election campaign and is now a member of Keir Starmer’s government, focused on what warnings he received about possible problems with the Horizon system.
That included the letter from former home secretary Jacqui Smith on behalf of a constituent, and another from Brian Binley, an MP at the time, forwarding a letter from Computer Weekly journalist Rebecca Thomson. In that 2009 letter, Thomson wrote:
“The Post Office refuses even to entertain the possibility that their system could be going wrong.”
McFadden said that he wished that he had challenged the Post Office more on its insistence that the Horizon system was robust. However, he said he was reliant on the Post Office, which gave an “emphatic defence” of the system.
Asked about a particular letter, he said:
The Post Office kept insisting that the system was robust and fit for purpose.
The terrible thing is that those court judgments were found to be unsafe and unsound. I did not know that at the time.
With this particular letter, I’m not sure, because it was so emphatic, but if you ask me over the whole story here, of course I wish I had done more to question these responses. I believe if I had I would have got the same response from the Post Office.
Updated
Sir Ed Davey, the leader of the Liberal Democrats, who was postal affairs minister between May 2010 and February 2012, is now being questioned by Jason Beer KC, counsel to the Horizon inquiry.
McFadden is repeatedly asked by the lawyer Sam Stein, who represents sub-postmasters, why no-one in the government spoke to the subpostmasters directly, rather than just going back to the Post office.
He said:
The right thing to do was to ask the people running the business and… that structure had been set up some years before I was the minister, they were the people who ran the Horizon system. They were the people who had the information about it.
And when I look at the correspondence in the round, what I’m really struck by is how emphatic their defence of the system was, and continued to be for a long time after this exchange of correspondence, not only an emphatic defence, but also the use of court judgments as a proof point.
When pressed on this, McFadden added that the National Federation of Subpostmasters said that they “didn’t think there was a fundamental problem with the system either”. He later discovered that the federation had a “bad relationship” with subpostmasters, “but that wasn’t something that was clear to me at the time”.
Updated
McFadden calls 'hands in the till' email 'shocking'
McFadden is shown an email from Alan Cook, the former managing director of the Post Office, who wrote to two staff members: “My instincts tell that, in a recession, subbies with their hand in the till choose to blame the technology when they are found to be short of cash”. (There are gasps in the room when the email is shown.)
Cook told the inquiry in April that he will “regret for the rest of my life” that email.
McFadden says he had not heard senior Post Office people express this view at the time, but that it was “shocking”.
Counsel to the inquiry Sam Stevens asks:
Any recollection of Mr. Cook expressing those views to you?
McFadden replies:
No, I never saw this. I think it was published by this inquiry some weeks ago, I saw it in detail for the first time on Monday. I think it’s shocking and revealing about the instincts inside the Post Pffice at the time, but I never heard senior Post Office people say that at the time.
Updated
Earlier, counsel to the inquiry Sam Stevens asked former postal affairs minister Pat McFadden:
Where does ultimate accountability for the actions of an arm’s length body such as the Post Office, that is owned by the government, lie?
He replied:
I’ve thought about this a lot because of this issue and this whole question of the arm’s length relationship and what happens when that goes wrong and what you can do about it.
If it’s state-owned, ultimately the accountability will lie with the government because it’s state-owned.
But I do want to stress that the legislation that had been passed and the postal services act had deliberately created this separation.
Hundreds of subpostmasters are still awaiting compensation despite the previous Conservative government announcing that those who have had their convictions quashed are eligible for £600,000 payouts.
Updated
McFadden is asked about the cases of individual subpostmasters, about which he was told in early 2009.
He is shown a letter from Jacqui Smith, the MP who wrote to him about Julian Wilson, a subpostmaster in her constituency who had been suspended by the Post Office for “making false cash declarations”, and others in a similar position. She wrote: “I feel that there could be a system problem here.”
At the time, he wrote back to her saying that these were operational issues that were a matter for the Post Office. He has just told the inquiry:
We would certainly, at that stage, have had no way of knowing about the detailed running of the Horizon system. What this whole story is, is that over time, there are more and more cases and more and more questions about it, but certainly in the early stages of this, this would have been regarded as a matter for the Post Office.
Updated
Pat McFadden has said that ministers “took no part in the decision to prosecute” post office operators by the Post Office.
The Post Office was unusual in regularly pursuing private prosecutions itself against its branch operators. Many of these relied upon evidence from the Horizon IT system, which ended up being faulty.
Just before the inquiry’s morning break, McFadden was asked about the oversight by ministers - the ultimate owners of the Post Office - of those prosecutions. He said that he did not remember ever discussing prosecutions, and that ministers would have trusted that the private prosecutions brought by the Post Office would meet the same standard as public prosecutions. He said:
I don’t remember that ever being discussed in that way. Ministers are very reluctant, for understandable constitutional reasons, to intervene in prosecutions. Once court judgments are cited, all the ministerial learning you have is not to interfere with the courts.
If ministers see reference to prosecutions or convictions in correspondence they will assume that the court has reached its verdict correctly… We are told not to interfere.
McFadden: 'Wrong' information on Horizon had 'terrible human consequences'
Cabinet minister Pat McFadden has told the inquiry that “wrong” information on the Horizon system has had “terrible human consequences”.
Counsel to the inquiry, Sam Stevens, has been asking about the process by which ministers make statements and write letters on the Post Office. McFadden said ministers have to trust that the information being given to them is accurate. He said:
It’s very difficult, and it’s relevant to this issue, because at the heart of this issue is that in the process that I’ve been describing… the information turns out to have been wrong, with terrible human consequences for some of the people who were here.
Decisions were made on the basis of information passed on by officials both in the department and from the Post Office itself, McFadden said. Ministers have very little room for manoeuvre if that information is incorrect or false, he said:
The minister is very reliant on those other layers having told the truth about the information that’s put in front of them to sign.
A feature of the Horizon correspondence and probably other things to do with an individual post office… the department and me as the minister we’ve got no independent information about that other than in the Post Office. Most of the time queries like this are answered directly by the Post Office themselves.
Labour minister promises 'fast and fair compensation' for subpostmasters
Away from the inquiry, the new Labour government answered an urgent question about the Post Office scandal in parliament and said compensation to wrongly convicted subpostmasters would be “fast and fair,” the BBC reported.
Asked when the compensation scheme would be up and running, business and trade Minister Justin Madders said the government would make a statement on the issue by the end of this month. He told MPs:
[We] intend to work cross-party, we believe that there’s absolutely no reason why that should not continue.
We absolutely agree with him... delivering fast and fair compensation is at the heart of all we are trying to achieve here.
Updated
The former postal affairs minister told the Horizon IT inquiry he was first made aware in February 2009 that the Post Office was prosecuting subpostmasters for alleged shortfalls at their branches.
Pat McFadden said an email from a Computer Weekly journalist asking for comment on allegations made by subpostmasters was the first time he became aware of complaints about the manner in which the Post Office conducted its investigations.
In his witness statement, McFadden said:
As far as I can tell from the documents this was the first time I was made aware that the Post Office was prosecuting its subpostmasters in respect of these shortfalls.
It was also the first time I became aware that there were complaints regarding the Post Office’s investigation of the issues.
Updated
McFadden said a handover note given to him when he took on the postal affairs minister role in mid-2007 “did not mention anything” in relation to subpostmasters’ complaints about the Horizon system.
In his witness statement, the Labour MP said:
The note did not mention anything in relation to any issues subpostmasters and subpostmistresses were having with the Horizon IT system, and I did not receive any oral briefing upon appointment to the department in relation to any such issues.
Horizon was mentioned in briefings and statements when I was first appointed only as an investment in the future of the Post Office.
I did not at the time of appointment know of complaints made by subpostmasters about the system, or any Post Office Limited or Royal Mail Group investigations into such matters, or any prosecutions by Royal Mail for fraud, theft or false accounting.
My knowledge of Horizon matters did not materially change or develop until early 2009.
Also in his witness statement to the inquiry, McFadden said he does not recall officials telling him that “they thought a miscarriage of justice was under way”.
He told the probe he believed that he was not told of it because the Post Office’s responses to queries about the system were that it was robust.
I have no evidence or reason to believe that the officials in the department were receiving any information different to that set out in the replies from the Post Office.
Ministers are reliant on the information they get from officials.
At no point do I recall officials saying to me that they did not believe these replies or that they thought a miscarriage of justice was under way.
I expect this was because they were being told the same thing by the Post Office, as was set out in the replies.
McFadden also told the Horizon IT inquiry “of course I wish I had done more” to question the Post Office over its Horizon IT system.
In his witness statement, the Labour MP and Cabinet minister said:
The Post Office’s insistence that the Horizon system was robust and reliable was proven over time to be wrong, with terrible human consequences. Their reliance on court judgments to back up that position was also to be proven wrong in the subsequent court actions that were pursued over the years in order to overturn earlier verdicts.
Rereading this correspondence now, and knowing the injustice done to so many subpostmasters, of course I wish I had done more to ask the Post Office if they were really sure their IT system was as robust as they suggested.
Yet if I had done so, I suspect they would have continued to insist that it was not to blame for these accounting errors and they would have continued to use the court judgments as proof points.
That was what they said in all the replies at the time in very strong terms and was the position they maintained for years afterwards.
It was only through pursuing appeals and litigation through the courts that the truth emerged and convictions were overturned as unsafe.
It is only now, 14 years on from my time in office, that parliament has taken the unprecedented step of legislating to overturn the remaining cases which have not been otherwise dealt with through the courts.
Updated
McFadden says IT flaws resulted in 'many innocent people being convicted' but minsters can't overturn court verdicts
In his witness statement to the Horizon inquiry, cabinet minister Pat McFadden said flaws in the Post Office’s IT system resulted in “many innocent people being convicted” but added that “ministers do not intervene in court judgments and cannot overturn court verdicts”.
He said:
At the root of all this was the Post Office’s insistence that its IT system was robust and not to blame for accounting errors and their willingness to bring prosecutions through the courts over many years.
This resulted in many innocent people being convicted or being held liable for debts they did not owe in the civil courts.
Ministers do not intervene in court judgments and cannot overturn court verdicts.
The separation of powers between the legislature and the judicial system is valued by all governments.
Updated
McFadden says he didn't discuss Horizon with secretary of state
Cabinet minister Pat McFadden has said that he did not discuss allegations about the Horizon IT system with the secretary of state during his time in the business department during the last Labour government.
McFadden served as junior minister in the Cabinet Office and the business department under first John Hutton and then Peter Mandelson from 2007 until 2009. He said that his main focus for Post Office issues was on a plan to close 2,500 out of 14,000 branches. He said:
It was quite hot politically, that programme.
On Horizon, McFadden was asked by counsel to the inquiry, Sam Stevens:
To the best of your recollection, did you have a conversation with the secretary of state at any point regarding the allegations made by sub postmasters as to the integrity of the Horizon IT system?
McFadden responded:
I don’t believe so.
Updated
Pat McFadden said that in his first 15 months in the job as as postal affairs minister the focus was on closing 2,500 Post Office branches, taking the total to 11,500.
The Post Office was run as an arm’s length body, the inquiry heard.
Updated
Former postal minister Pat McFadden and Lib Dem leader Ed Davey appear before Horizon inquiry
The former postal minister Pat McFadden has arrived at Aldwych House to give evidence to the inquiry into the Post Office Horizon IT scandal.
McFadden, a Labour MP, was the minister in charge of postal affairs between July 2007 and June 2009. He ran Labour’s recent election campaign and is a member of Keir Starmer’s government as chancellor of the duchy of Lancaster.
The Liberal Democrats leader Ed Davey, who was postal affairs minister between 2010 and 2012, is also due to give evidence later. They are among politicians who have had responsibility for the Post Office in the past and face questioning this month.
All three main political parties face questions over what they knew about the scandal, which gained fresh prominence after a powerful ITV drama, Mr Bates vs the Post Office, documented the fight for justice waged by Sir Alan Bates.
You can watch it live here:
McFadden told the BBC earlier this year that he wished he had asked more questions about Horizon. He said:
Each time an MP raised a question about this, the reply would come back from the Post Office that they thought the system was robust, they had no evidence to suggest there was anything wrong with Horizon.
But even in 2009 there were warning signs. Computer Weekly published its first article about convicted Post Office operatives in May that year, and Bates formed his Justice for Subpostmasters Alliance a few months later.
More than 700 post office operators were wrongly prosecuted by the Post Office and handed criminal convictions between 1999 and 2015 because the Japanese firm Fujitsu’s faulty Horizon IT system made it look as though money was missing at their branches.
Updated
Here is our full story on the labour market figures
UK wage growth slowed in May to the lowest level in two years amid a cooling jobs market, underscoring the challenge for the Bank of England as policymakers decide whether to cut interest rates.
Figures from the Office for National Statistics (ONS) show annual pay growth eased from 5.9% in the three months to April to 5.7% in the three months to May, matching City economists’ predictions.
Unemployment was unchanged from 4.4% in April, while the number of job vacancies fell by 30,000, led by dwindling demand in retail and hospitality amid a continued slowdown in hiring across the economy.
After a sharp fall in headline inflation over recent months, real wage growth taking into account the rising cost of living has strengthened. Total real pay – including bonuses – rose by 3% on the year in the three months to May. Growth was last higher in the three months to August 2021, when it was 4.5%.
Meanwhile, Sanjay Raja, chief UK economist at Deutsche Bank, said the cooling labour market keeps an August rate cut in play.
After a sticky services CPI [consumer prices index] print, today’s data paints a more encouraging picture of the labour market. Wage growth is receding and vacancies continue to drop. The economic activity rate also picked up – for the first time in four months. And redundancies remain slightly elevated.
For the Bank of England, today’s wage data should validate its projections on private sector regular pay (they project Q2 data to slow to 5.1% ). And there are clear signs in today’s labour market report of a cooling jobs market – vacancies are down, the single month unemployment rate is up, participation is up, and the claimant count rate also ticked higher. All up, while it was ALWAYS going to be a close call, today’s data should keep an August rate cut on the table.
Viraj Patel, global macro strategist at Vanda Research, is also not ruling out a Bank of England rate reduction in August.
⚠️ UK headline jobs in line but that's stale data from May. Unofficial payrolls data for June shows softest wage growth since Covid (from 6% to 3.6%!). Yes this will get revised. But a sign of base effects coming. Jobless claims high again for Jun. Not ruling out Aug BoE cut $GBP pic.twitter.com/5mdTtN9NMb
— Viraj Patel (@VPatelFX) July 18, 2024
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Resolution Foundation: Wage growth 'still too hot to handle for Bank of England'
Luke Bartholomew, deputy chief economist at the investment firm abrdn, said:
There were no nasty surprises for the Bank of England in today’s labour market report, with wage growth continuing to slow in line with expectations. Household spending should continue to be supported by wages growing well in excess of inflation.
But the double edge to this sword is that wage growth is still well above a level that the Bank would consider consistent with its 2% inflation target. So policy makers need confidence that wage growth will slow further before embarking on rate cuts. Given the mixed data recently, if the BoE does plan on cutting in August – which we still just about expect – then the market may benefit from some guidance to this effect from key Bank decision makers very soon.
The Resolution Foundation, a think tank, also said that wage growth is “still too hot to handle for the Bank of England”.
UK wage growth still too hot to handle for the Bank of England - @GregoryThwaites comments on the latest @ONS labour market statistics https://t.co/tKuhGUR0Ea pic.twitter.com/Bac5fhhM9R
— Resolution Foundation (@resfoundation) July 18, 2024
Updated
Despite cooling labour market, some economists say September rate cut more likely than August
Even though wage growth is cooling, some economists believe the Bank of England’s first rate cut is more likely to come in September rather than August.
Ashley Webb, UK economist at the consultancy Capital Economics, said the slowdown in the jobs market probably wasn’t enough to offset strength in services inflation.
As a result, we have changed our forecast for the timing of the first interest rate cut from 5.25% from August to September, although it is a close call.
But we think the cumulative effect of weak GDP growth last year and some improvement in supply this year will mean that services inflation falls from 5.7% in June to 3.5% in early 2025 and wage growth slows to 3% by the end of next year. That’s why we still expect rates to fall to 3% by the end of 2025 instead of 4% as investors expect.
Rob Wood, chief UK economist at Pantheon Macroeconomics, is also expecting a rate cut in September rather than August.
Rate setters will breathe a sigh of relief after today’s labour market data, which leaves open the option to cut in August despite hot CPI services inflation. Rate setters will be encouraged by softer private sector pay growth in May, suggesting only small upside risks to their forecast for Q2 pay growth.
We think an August rate cut is a very close call. The MPC could easily dismiss yesterday’s stronger-than-expected CPI services reading as volatile, just as they did in June, note slowing wage growth, and plough on with a rate cut in August. But we think services inflation is just too hot for the MPC to go ahead in August, and instead expect them to wait until September to reduce interest rates.
Looking ahead pay growth should slow as that boost from the minimum wage fades and pay deals in the second half of the year are set in the context of sub-3% inflation.
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Introduction: UK wage growth slows; global chip stocks fall amid growing tensions between US, China and Taiwan
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK job market has continued to cool, with wage growth slowing to a two-year low while the unemployment rate remained at 4.4%, according to the latest official labour market figures.
Average earnings growth slowed to 5.7% between March and May from 5.9% in the three months to April, said the Office for National Statistics. Both regular wages, and earnings including bonuses, grew at an annual rate of 5.7%.
Regular wage growth was last lower than this in the three months to August 2022, while total wage growth was last lower in the three months to January.
The figures are closely watched by the Bank of England, which next meets on 1 August. Following higher-than-expected inflation yesterday, financial markets scaled back expectations of a rate cut at that meeting, putting the probability at 35%. This has just risen to 40% after the labour market data.
In the public sector, wage growth remained strong at 6.4% for the third consecutive period while in the private sector, it was 5.6%.
The finance and business services sector saw the largest annual regular growth rate at 6.7%; while the construction sector saw the smallest rate at 3%, the same as the previous three-month period.
Liz McKeown, the ONS director of economic statistics, said:
We continue to see overall some signs of a cooling in the labour market, with the growth in the number of employees on the payroll weakening over the medium term and unemployment gradually increasing.
Earnings growth in cash terms, while remaining relatively strong, is showing signs of slowing again. However, with inflation falling, in real terms it is at its highest rate in over two and a half years.
Annual growth in real terms – adjusted for inflation – for regular pay was 2.5% in March to May, and for total pay was 2.2%.
The UK’s unemployment rate stayed at 4.4% in the three months to May. The number of job vacancies fell by 30,000, led by dwindling demand in retail and hospitality amid a continued slowdown in hiring across the economy.
We’ve published the latest UK labour market figures.
— Office for National Statistics (ONS) (@ONS) July 18, 2024
Headline indicators for the UK labour market for March to May 2024 show:
- employment was 74.4%
- unemployment was 4.4%
- economic inactivity was 22.1%
Read Labour market overview ➡️ https://t.co/MdXZmfY8cb pic.twitter.com/gjSFyoyNgv
Global chip stocks tumbled, with the Dutch company ASML, US firm Nvidia and Taiwan’s TSMC hit by reports of tighter export restrictions from the US and remarks from Donald Trump.
Bloomberg reported yesterday that the Biden administration is considering using the most severe trade restrictions available to clamp down on companies exporting their critical chipmaking equipment to China.
Washington’s foreign direct product rule (FDPR) allows the US to put controls on foreign-made products if they use a small amount of American technology. This can affect non-US companies.
Trump, the former US president who is running for the presidency again, said Taiwan should pay the US for defence, in an interview with Bloomberg Businessweek. He also claimed Taiwan took “about 100%” of America’s semiconductor business.
ASML shares tumbled by 11% despite better-than-expected sales and profits, with 49% of its sales coming from China. Tokyo Electron shares in Japan closed 8.8% lower and TSMC dropped by 2.4%. The Cambridge-based chipmaker Arm closed down by 10%, along with US firms AMD and Marvell, while Qualcomm and Broadcom fell by around 8% and Nvidia lost 6.6% on Wall Street. This drove the tech-heavy Nasdaq lower by 2.77%, while the S&P 500 lost 1.4%.
The Agenda
1.15pm BST: European Central Bank interest rate decision
1.30pm BST: US Initial jobless claims for week of 13 July
1.45pm BST: ECB press conference
3.15pm BST: ECB president Christine Lagarde speech
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