UK unemployment rate rises to 3.9% as company payrolls shrink; German investor morale plunges – business live

Q: Do you consider the implications of your decisions on the UK’s international reputation as a place to do business?

This is a clear reference to Microsoft president Brad Smith’s claim that the CMA’s decision to block the Activision deal was “bad for Britain”, and that the EU was a better place to start a business.

Sarah Cardell says the CMA absolutely committed to support competitive markets in a way that is “absolutely good” for the UK and its economy.

The CMA’s chief executive explains to the committee that:

Competition is a keystone, an absolutely foundational block of UK competitiveness.

You want to have strong competition in markets, it promotes growth and promotes innovation.

Q: Everyone’s in favour of competition in markets… do you consider our international reputation at all in your decisions, and whether the UK looks ‘open to business’?

Individual cases need to be decided on their merits, Cardell insists. But ‘absolutely, the CMA thinks about the impact of its decisions when it considers its role strategically.

Cardell hits back against the claim that the CMA has undermined the UK’s reputation, saying:

I believe that strong competition is a very positive signal for the UK’s reputation externally.

CMA chair Marcus Bokkerink wades in to support this point.

Bokkerink tells MPs that all businesses know that there’s a big difference between building a business, or investing in a start-up, and buying an already well-established firm with established positions.

The two are not the same, Bokkerink points out, saying:

The UK has always encouraged, and it’s the CMA’s duty to support and encourage, open and competitive markets.

Bokkerink questions whether confidence in the UK will be helped by “turning a blind eye to anti-competitive mergers”.

Q: It’s been reported that tech companies have been recruiting lots of lobbyists and persuaders to affect the work of the CMA – is that a concern?

CMA CEO Sarah Cardell says the overall experience of engagement with the tech industry has been ‘very positive’.

She meets regularly with senior representatives of tech companies and the industry.

This is a sector where we want to work together, and create the best conditions for competition, Cardell explains.

Of course, there will be individual decisions where we disagree, she adds, but:

I don’t find that we are operating in a hostile environment.

She cites a case against Google’s privacy sandbox, which was resolved constructively with a solution that’s now being rolled out worldwide.

Sarah Cardell, chief executive of the Competition and Markets Authority, begins today’s session by explaining why the CMA is opposing Microsoft’s takeover of Activision Blizzard.

Q”: Where are we with the Microsoft-Activision deal?

CMA CEO Sarah Cardell explains that the CMA’s decided at the end of April to prohibit the deal, due to concerns that competition in the cloud gaming market would suffer.

Microsoft has a leading position in cloud, due to its cloud infrastructure, its Xbox gaming console and Windows.

The CMA was concerned about Microsoft’s ability to take that position and combine it with Activision, and its significant portfolio of games (such as Call of Duty), Cardell explaines.

It would lead to a lessening of competition, the CMA feared, as it would prevent other cloud gaming providers from competing effectively as the market develops.

The CMA considered the proposed remedy from Microsoft “very carefully”, Cardell insists, but concluded it would not be a comprehensive and effective remedy.

Microsoft, she says, offered a licencing deal that would set the terms of trade for the market for the next 10 years; determining the terms in which other cloud computing providers would get access to those games.

This is a very important, evolving market, and the CMA wants to ensure it can evolve unincombered by regulatory constraints.

The CMA has decided that the deal needs to be prohibited.

The EC, though, decided yesterday to approve the deal.

Cardell says the Commission did conclude there are competition concerns from the deal – so there is no difference between the EC and the CMA on that point.

However, the Commission accepted Microsoft’s proposed remedy.

Cardell adds:

We remain of the view, from a UK perspecive, that it was not appropriate to accept that remedy.

She reminds MPs that the US Department of Justice is also suing to block the deal.

Over in parliament, MPs on the Business and Trade Committee have begun a hearing on “The work of the Competition and Markets Authority”.

Up before them, we have CMA chair Marcus Bokkerink, and chief executive Sarah Cardell.

Here’s a piece from earlier this month, about the CMA’s global ambitions – which have included blocking Microsoft’s takeover of Activision Blizzard, and taking a look at the underlying systems – or foundation models – behind AI tools.

Analysis: UK interest rate rises are taking the labour market off the boil

Phillip Inman

There are signs the Bank of England’s interest rate rises are making businesses think twice about hiring staff, bringing down the number of vacancies, my colleague Phillip Inman writes.

Pushing in the same direction, the high cost of living is driving more people back into the workforce.

The effect shows up in the latest labour figures from the Office for National Statistics (ONS) as a fall of 55,000 in the number of vacancies in the three months to April and a 156,000 drop in the number of inactive workers.

Separate HMRC figures showed a 136,000 fall in PAYE employees between March and April – the first reduction since February 2021.

Put together, these figures tell us the UK’s pressure-cooker labour market – with lots of advertised jobs and too few workers to fill them – has begun to come off the boil.

When the Bank of England’s main concern relates to the tightness of the labour market, which is reflected in a high vacancy rate, then these trends will be welcomed by anyone who wants interest rates to fall and growth to pick up….

More here:

German investor sentiment fell more than expected in May, suggesting that Europe’s largest economy is deteriorating and could fall into recession this year.

The ZEW economic research institute’s gauge of investor morale in Germany has tumbled to -10.7 points, down from 4.1 points in April.

Economists polled by Reuters had expected a smaller drop, to -5.3.

This brought the ZEW indicator back into negative territory for the first time since December 2022.

ZEW president Achim Wambach said.

“As a result, the German economy could slip into a recession, albeit a mild one.”

Wambach said that fears of further interest rate hikes by the European Central Bank weighed on morale, adding that the US debt ceiling deadlock was another factor:

A possible default by the United States in the next few weeks also increases the uncertainty with regard to international economic development.

Full story: UK payroll numbers fall as unemployment rate rises to 3.9%

Larry Elliott

The number of workers on UK employers’ payrolls dropped for the first time in two years last month amid signs that the flatlining economy has started to take a toll of Britain’s labour market, our economics editor Larry Elliott reports.

Fresh figures from the Office for National Statistics showed a 136,000 fall in employees between March and April – the first reduction since February 2021.

Although the ONS said the data was provisional, the numbers on payrolls provide the most timely guide to the state of the jobs market and will be seen as evidence of a cooling in demand for labour. Despite April’s fall, payrolls are more than 800,000 higher than they were in February 2020, the month before the UK went into its first Covid-19 lockdown.

The official figures showed employment and unemployment up in the first three months of 2023. With the cost of living crisis hitting household budgets, there was a record flow of people out of inactivity and into work. The unemployment rate rose unexpectedly to 3.9% from 3.8%.

Job vacancies fell by 55,000 to just over 1m in the three months ending in April, the 10th consecutive quarterly drop. The number of people inactive as a result of long-term sickness reached a fresh record of 2.55 million.

The ONS director of economic statistics, Darren Morgan, said:

“Employment and unemployment both rose again in the first three months of 2023, driven in particular by men.

This means the number of those neither working nor looking for work continues to fall, although the number of people not working due to long-term sickness rose again, to a new record.”

Despite the highest pay growth in the public sector for two decades, the ONS said workers in public and private sectors were becoming worse off because prices were rising faster than wages. Average regular pay growth for the private sector was 7.0% and for the public sector was 5.6% in January to March, but the cost of living rose by 10.1% in the year to March.

Meanwhile, the number of days lost through strikes rose from 332,000 in February to 556,000 in March, with 80% of the total the result of action in the health and education sectors.

More here:

Some good news: there’s been a drop in the number of companies collapsing.

The number of registered company insolvencies in England and Wales fell to 1,685 in April, 15% lower than the 1,988 which failed in April 2022.

It’s also a third less than in March, when there were 2,471 insolvencies.

Most of these were creditors’ voluntary liquidations (CVLs) in which a firm’s directors choose to close their company because it is insolvent.

But the number of compulsory liquidations almost doubled, year on year, to 183.

The Insolvency Service explains:

Numbers of compulsory liquidations have increased from historical lows seen during the coronavirus pandemic, partly as a result of an increase in winding-up petitions presented by HMRC.

Carla Matthews, head of contentious insolvency and asset recovery at PwC, says:

“The number of insolvencies last month (1,685) was 15% lower than in the same month last year and down on the 2,457 seen in March. On the surface this looks encouraging and is likely due to increased business confidence and directors taking a more optimistic view of the economic outlook. Simultaneously, the Easter court break may have contributed to the reduction in compulsory liquidations.

“However, we’re not out of the woods yet. The trading environment remains challenging for business, and while energy costs are starting to drop, both inflation and the cost of servicing debt remains stubbornly high, with commodity prices continuing to cause pressure across a range of sectors, so the outlook for the rest of the year may still be turbulent.

Today’s UK labour market report (coverage starts here) shows that the heat is coming out of the UK jobs market, explains ING’s developed markets economist James Smith .

Smith argues that there’s nothing in the UK wage data that screams the need for another rate hike either.

He says:

“Last month’s surprisingly strong UK wage growth figure was almost certainly a key driver behind last week’s Bank of England decision to raise interest rates further. This month though, the story appears more benign. The headline rate of regular pay growth, which compares the past three months to the same period last year, notched up to 6.7%. But the level of average weekly pay (ex bonuses) increased by only £2 in the past month, a slower pace than we saw through much of 2022 and indeed in the previous month (which now looks like an aberration).

“Smoothing out recent volatility and comparing the most recent three months to the three months before, the rate of private sector wage growth has clearly slowed since 2022. That trend is also supported by the BoE’s own survey of businesses, which indicates that both price and pay pressures beginning to ebb.

“Elsewhere there are further signs that the heat is coming out of the UK jobs market, albeit steadily. The unemployment rate inched up to 3.9%, while we saw the first monthly fall in employment since early 2021, at least according to the experimental payrolled employees measure.”

One in five workers will be higher-rate taxpayers by 2027 – IFS

Larry Elliott

One in four teachers and one in eight nurses will be higher-rate taxpayers by 2027 as a result of the government’s record freeze on income tax allowances and thresholds, according to a leading thinktank this morning.

The Institute for Fiscal Studies said better-paid public sector workers will be among the almost 8 million people – one in five of all taxpayers – who will pay income tax at 40% or above as result of the Treasury’s attempt to reduce the UK’s budget deficit.

In what it described as the biggest tax-raising measure since the incoming Conservative government doubled VAT to 15% in 1979, the IFS said an additional 2.5 million people would no longer be basic rate taxpayers by the time the six-year freeze on allowances and thresholds came to an end in 2027-28.

Here’s the full story:

The news adds to the “mounting unrest” among Conservative PMs, The Times says,

Tesco has announced another round of price cuts on its own-brand pasta and cooking oil as it sees deflation making its way through to cupboard essentials.

The UK’s biggest supermarket is dropping the price of 30 products, with 15p off 500g and 1kg packs of own-brand pasta, 14p off its one litre vegetable oil and 15p off its one litre sunflower oil.

Tesco group chief product officer Ashwin Prasad said:

“As we see deflation coming through on key cupboard essentials such as pasta and cooking oil, we’re pleased to pass on these savings to customers.

“We hope that by reducing prices on these 30 products which are bought week-in, week-out, we can help customers spend less.”

According to the UN, global wholesale food prices hit record levels last April after the Ukraine invasion, but then fell over the next year.

The announcement comes on the day Downing Street hosts a “Farm to Fork Summit”, bringing together farmers’ representatives and food and retail trade bodies along with supermarket chiefs to discuss boosting co-operation across the supply chain and the sector’s resilience – and tackling rampant food inflation, which jumped by over 19% in March.

Despite dropping by 156,000 in the last quarter, there are still 8.73m people classed as economically inactive in the UK.

That’s 361,000 more than before the pandemic.

Tony Wilson, Director at the Institute for Employment Studies, explains how rising sickness is keeping people out of work:

“The stand-out figure in today’s data is another sharp increase in the number of people off work with long-term health conditions, up by nearly a hundred thousand in the last quarter to over 2.5 million people.

This is now comfortably the largest number of people out of the labour market due to long-term health problems that we have ever seen. This is being masked to some extent by a fall in overall economic inactivity, which is mainly being driven by big falls in the number of students, with student numbers almost back to where they were before the pandemic. So it looks like those people closer to work are still moving into jobs, while those more disadvantaged in the labour market are getting left behind.

Long Covid is one factor, with many sufferers reporting unfair treatment or lack of support from employers.

Long NHS waiting lists are another cause. The number of people in England waiting to start hospital treatment rose to a new high of 7.22m in February.

Wilson says a lot more could be done to help people out of work to prepare for work and to get back in, and particularly those with long-term health conditions.

The announcements at the Budget on this were a start, but will largely only replace provision that is already in place and due to end next year.

So we need to see more focus in our existing employment services like Jobcentre Plus and the Restart Scheme on helping these groups, and more investment in the sorts of specialist employment support, occupational health and workplace practices that will make a difference.”