UK unemployment rate slips unexpectedly to 4.9% in February, but payroll numbers fall ahead of reopening

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Britain entered a tough new lockdown in January

The UK unemployment rate fell unexpectedly in the three months to the end of February, data showed on Tuesday, ahead of the country’s latest loosening of coronavirus restrictions.

But the number of employees on payrolls fell by 56,000 in March compared to February, painting a mixed picture about the UK jobs market.

Headline unemployment slipped to 4.9% from December to February from 5% in the previous quarter, the Office for National Statistics said.

It beat economists’ expectations of a rise to 5.1%, but analysts said the figure was flattered by a rise in people becoming economically inactive, meaning they had stopped looking for work.

Yet there were some signs of progress in hiring. The number of vacancies for jobs rose nearly 16% in March compared to February, according to experimental data.

The UK economy is gradually reopening from the tough restrictions that were in place from January to March. On April 12, pubs, non-essential stores and hairdressers were allowed to reopen as the vaccine drive picked up speed.

Britain’s government’s furlough scheme currently pays the wages of roughly one in five employees and has been a key reason that the country’s unemployment rate has stayed relatively low, rising only 0.9 percentage points in the year to February 2021.

“The slight fall in the unemployment rateā€¦ suggests that the government’s job furlough scheme is still insulating the labor market from the worst effects of the pandemic,” Thomas Pugh, UK economist at Capital Economics, said.

However, economists expect the UK unemployment rate to climb once the furlough scheme is wound down towards the end of the year.

James Smith, developed market economist at ING, said: “Like most economists, we expect the unemployment rate to rise this year.”

He added: “The end of the furlough scheme, and to a lesser extent, a potential increase in inbound UK migration later this year (partly reversing last year’s population fall) are both likely to trigger a temporary spike in the jobless rate to 6-6.5%.”

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Americans are sitting on $2.6 trillion in excess savings from the pandemic that can help power a recovery, Moody’s says

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Americans built up extra savings over the pandemic as spending opportunities were limited.

Americans have built up excess savings worth $2.6 trillion since the start of the coronavirus pandemic that will help power the economy’s recovery from the crisis, according to Moody’s Analytics.

The US has amassed the most excess savings of any country, with the cash pile amounting to 12% of gross domestic product.

Around the world, people have built up extra savings worth $5.4 trillion, equal to around 6.5% of GDP. Savings have shot up as opportunities for spending have been limited by lockdowns but central banks and governments have pumped money into economies to support employment.

“An unleashing of significant pent-up demand and overflowing excess saving will drive a surge in consumer spending across the globe as countries approach herd immunity and open up,” said Mark Zandi, chief economist at Moody’s Analytics, a sister company of the credit ratings agency, in a note.

Zandi said Moody’s expects 20% of the US excess savings to be spent in 2021, adding 2.4 percentage points to real GDP growth in 2021. The analysis company expects the US economy to grow 6.4% in 2021 after shrinking 3.5% in 2020.

A further 20% will then be spent in 2022, Moody’s predicted, adding another 2.4 percentage points to annual growth, which is set to come in at 5.3%.

However, Zandi said the unequal nature of the savings built up in the US would limit an even bigger boom in spending.

“Much of the excess saving has been by high-income, high-net-worth households who are likely to treat the saving more like wealth than income, and will thus spend much of less it, at least quickly,” he said.

Moody’s data showed that nearly two-thirds of the excess savings in the US is by households in the top 10% of the income distribution, and three-quarters is by those in the richest 20%.

Excess savings are defined as extra savings on top of what households would have put aside had coronavirus not occurred and their behaviour been the same as in 2019.

Earlier this month, JPMorgan strategist Karen Ward said the large build-up in consumer spending could lead to stronger-than-expected inflation, which could in turn cause volatility in stock markets.

“The US consumer is generally not known for its reserve and thriftiness at the best of times,” she said.

Ward said she thought it was likely that inflation averaged 3% over the next decade. Core personal consumption expenditure inflation, the Federal Reserve’s preferred measure, stood at an annualized 1.4% in February.

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Bank of England signals it’s not worried by rising bond yields as it leaves monetary policy unchanged

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The Bank of England left monetary policy unchanged

  • The Bank of England left interest rates at record lows and its $1.2 trillion bond-buying package unchanged.
  • The BoE signaled that it is not concerned with rising bond yields, which have worried some investors.
  • It noted that the US’s $1.9 trillion fiscal stimulus had brightened the economic outlook.
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The Bank of England kept interest rates at a record-low level of 0.1% and its bond-buying package at 895 billion pounds ($1.2 trillion), while saying little about the recent rise in bond yields that has worried some investors.

The UK’s central bank reiterated that it doesn’t intend to reduce its support until there is clear evidence of “significant progress” in achieving its 2% inflation target and in the economy’s recovery from COVID-19.

In a statement, the Bank’s policymakers addressed the recent rise in bond yields around the world, saying it had been driven by stronger growth expectations.

The Bank did not push back on rising yields, saying UK financing conditions have been “broadly unchanged” since February. It said it would keep buying bonds at the same pace.

UK government bond yields were little changed after the decision, with the 10-year Gilt yield at 0.902%. Yields move inversely to prices. The pound slipped against the dollar to trade 0.1% lower at $1.394.

It was a different approach from the European Central Bank, which earlier in March called rising bond yields “undesirable” and pledged to step up the speed of its bond purchases to try to soothe the market.

The ECB argued that higher market interest rates could weigh on the economy by leading to less borrowing.

The Bank of England’s approach was closer to that of the Federal Reserve, which on Wednesday stressed it was not planning to alter its policies despite sharply upgrading its growth forecasts.

The BoE said that President Joe Biden’s $1.9 trillion stimulus bill “should provide significant additional support to the outlook.” But it broadly stuck to its forecast that inflation should rise sharply to around 2% in the spring before moderating.

Ruth Gregory, senior UK economist at Capital Economics, said the Bank’s statement “suggests that rates won’t rise next year as the markets expect.”

She added: “Overall, we think the markets have gone too far in expecting rate hikes from mid-2022. We think that rates won’t rise above their current rate of 0.1% until 2026.”

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Christine Lagarde calls rising bond yields ‘undesirable’ as ECB steps up purchases to soothe the market

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Christine Lagarde said rising bond yields could start to weigh on the recovery

  • Christine Lagarde said the ECB was concerned rising bond yields could weigh on the recovery.
  • The ECB said it would step up the pace of bond purchases to try to support lending in the economy.
  • Rising bond yields have worried markets in recent weeks – but European yields fell after the decision.
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European Central Bank chief Christine Lagarde said on Thursday the recent rise in bond yields could have an “undesirable” impact on the economic recovery, after the ECB announced it would ramp up the speed of its asset purchases to try to calm the market.

The Eurozone’s central bank left its coronavirus bond-buying envelope at 1.85 trillion euros ($2.21 trillion) and its key interest rate at -0.5%. But it said it would “significantly” step up the pace of its purchases within the asset-buying scheme over the next three months.

Lagarde said in a press conference after the decision that the ECB was responding to a rise in “market interest rates” including bond yields, which have climbed rapidly in recent weeks and weighed on market confidence.

“If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy,” she said.

“This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity.”

The ECB’s increase in the rate of bond purchases aims to tackle rising market interest rates by increasing demand for securities. Bond yields move inversely to prices.

European bond yields dropped following the announcement, with the yield on the 10-year German bond falling 1.9 basis points to -0.332%. The Italian 10-year yield fell 9.4 basis points to 0.592%.

Rising bond yields have unnerved markets in recent weeks and triggered a sharp sell-off in equities, particularly tech stocks that soared when yields were low.

Stronger expectations of growth and inflation, thanks to the rollout of vaccines and fiscal stimulus, have pushed yields sharply higher. Stronger inflation erodes the return on bonds, making investors demand a higher yield.

US Federal Reserve Chair Jerome Powell has said rising bond yields are a result of a brighter economic outlook, and that the central bank plans to keep policy steady for the time being.

But policymakers in Europe have appeared more concerned, in part because the Eurozone’s recovery is expected to be more fragile than that of the United States.

“The just-released statement suggests that the ECB is trying to demonstrate its willingness to put a cap on bond yields without showing signs of panic,” Carsten Brzeski, global head of macroeconomics at Dutch bank ING, said in a note.

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