Pre-election UK interest rate cut unlikely despite cooling jobs market; Moody’s warns France over snap election – business live

UK tech firm Raspberry Pi has made a sparkling stock market debut.

Cambridge-based Raspberry Pi, which sells low-cost computers aimed at helping children to learn about computing, has floated in London at a market capitalisation of £541.6m, or 280p per share.

And traders are piling into the company, pushing up its share price by a third to 370p.

Dan Coatsworth, investment analyst at AJ Bell, says the float proves the UK can attract tech flotations:

“Investors of all shapes and sizes have feasted on a slice of Raspberry Pi in what is the most significant IPO for the London market for a long time. It may only fall into smaller company territory, but this IPO is big from a strategic perspective.

“It shows the UK is open for business to technology flotations and that investors are hungry for companies of any size if they tick the right boxes. There is a widely held view that tech companies only float in the US where they can potentially get a higher valuation. Raspberry Pi is proof that the UK can still compete against the likes of the Nasdaq and attract home-grown champions.

“Raspberry Pi is a profitable, established name and not reliant on the ‘jam tomorrow’ story that often props up a lot of tech IPOs. It has a large community of users; it makes money rather than simply being a bright idea that is not yet commercialised; and there is a strong social angle as Raspberry Pi has education built into its business model.

“The UK market is woefully under-represented in tech names and hopefully Raspberry Pi’s IPO success will open the flood gates for others in the sector to also float here. If the London Stock Exchange wants a new posterchild for how IPOs should play out and to attract others onto the market, Raspberry Pi is the one to hold up high.”

Worryingly, the number of UK mortgages in arrears has risen to a seven-year high.

New Bank of England data shows that 1.28% of loans were in arrears in the first quarter of 2024, up from 1.23% in the previous three months.

That’s the highest reading since the fourth quarter of 2016, and suggests more households are strugging to meet their mortgage payments due to high interest rates.

The value of outstanding mortgage balances with arrears increased by 4.2% from the previous quarter to £21.3bn – a 44.5% increase compared with a year earlier. This is the highest reading in almost a decade, since the third quarter of 2024.

Simon Gammon, managing partner at Knight Frank Finance, said:

“The value of mortgage balances in arrears has surged as household finances have come under pressure from both higher mortgage rates and the rising cost of various goods and services.

This is serious for people struggling to pay their mortgage, but it doesn’t yet present a systemic risk to the housing market. The proportion of the total loan balances in arrears is still relatively low at 1.28%, though Bank of England policymakers will be watching this data closely. New arrears cases actually dipped a little during the quarter, which suggests the situation may be stabilising.

“Mortgage rates are currently trading sideways and barring any nasty surprises, should continue easing once the timing of the Bank of England’s first cut to the base rate becomes clearer.

“Anybody concerned about falling behind on their mortgage payments should contact their lender as early as possible. The lenders have received strict instructions from regulators to offer forbearance, whether via extending mortgage terms or temporarily switching to interest only payments.”

French government bonds are weakening again this morning, adding to losses yesterday.

With prices falling, the yield (or interest rate) on 10-year French government bonds has risen to 3.28%, up four basis points (or 0.04 percentage points) from last night.

That’s the highest levels since last November.

These 10-year bond yields, a measure of French government borrowing costs, ended last week at 3.12%, but jumped on Monday, before rising again today.

Rising bond yields reflect investor nervousness about the political uncertainty in France created by Emmanual Macron’s decision to dissolve the French parliament and hold snap elections.

Christophe Jakubyszyn of French financial newspaper Les Echos has argued that Macron acted too quickly, with a “crazy” dissolution which risks leaving the door wide open to the far right.

Across the Channel, ratings agency Moody’s has warned the French government that its snap parliamentary elections are negative for the country’s credit score.

In a statement, Moody’s warns:

“This snap election increases risks to fiscal consolidation.”

President Emmanual Macron shocked Europe by announcing the parliamentary election, just a few hours after learning that his centrist allies had been pummelled in European elections, while the far right Rally National had secured twice as many votes, around 32%.

Moody’s suggests that its current “stable” outlook on France’s rating could be cut to “negative” if its debt metrics worsened further, saying:

“Potential political instability is a credit risk given the challenging fiscal picture the next government will inherit.

A weakening commitment to fiscal consolidation would also increase downward credit pressures”.

An opinion poll last night suggested that National Rally was on track to win the snap election in France but fall short of an absolute majority.

If RN were to win a majority, Macron will be forced to name a RN deputy as prime minister — leading to a period of so-called “cohabitation” between the parliament and the Élysée Palace.

Modupe Adegbembo and Mohit Kumar of Jefferies say:

Such an outcome would leave Macron in an even weaker position to push through much need economic reforms including changes to unemployment benefits and fiscal consolidation. Even in a situation in which Macron is able to still command a majority, it hard to think he will not end up in an even weaker position after this.

The Bank of England is unlikely to cut interest rates before next month’s general election, the money markets indicate today.

There’s just a 10% chance that the BoE lowers base rate to 5%, from 5.25%, at its meeting a week on Thursday. (20 June), according to the latest City pricing.

That’s little changed from last night, before this morning’s data showed the labour market is cooling, with unemployment rising again to 4.4%.

The Bank is then due to set rates in August, September, November and December.

And this morning, the markets now expect the first rate cut to come by November. Before 7am today, the first cut was only fully priced in for December.

The complication for the Bank is that it wants to see more evidence that inflationary pressures are cooling. A weaker jobs market will help with that, but wage stickiness – earnings are rising at around 6% per year – will not.

So, the fact that wage growth slowed in April alone – despite being unchanged over the February-April quarter – could nudge some policymakers towards considering easing policy this year, if the trend continues.

Yael Selfin, KPMG’s chief economist, says today’s “mixed labour market data” is unlikely to shift the dial for the BoE this month:

The unemployment rate ticked up to 4.4%. The recent weakening in demand for staff has been attributed to a lack of roles and firms delaying hiring decisions. This is consistent with a broader trend of retaining existing labour, and could signal that firms expect a pickup in activity so that they could utilise their existing staff more.

“Overall, today’s data are unlikely to warrant an immediate shift in policy from the Bank of England. We expect the MPC to stay put at its June meeting and reassess the incoming data flow over the summer before it embarks on cutting interest rates.”

Matthew Ryan, head of market strategy at global financial services firm Ebury, agrees that hopes of a pre-election interest rate cut have faded:

“Sterling largely held its own off the back of the data, as while rapidly rising wages could delay the start to Bank of England interest rate cuts, the increase in joblessness bodes ill for the UK’s growth outlook.

“This will not be particularly welcome news for Rishi Sunak’s Tory Party, who appear to have based their call for early elections on the strength of Britain’s recent economic data.”

RSM UK economist Thomas Pugh argues that the Bank’s monetary policy committee (MPC) should cut rates in August:

“Today’s data will make pretty uncomfortable reading for the MPC.

But it is clear the labour market is loosening and forward-looking indicators suggest pay growth will slow, combined with a further fall in inflation in May, that should be enough to justify the Bank of England following the ECB with a rate cut in August.

Richard Carter, head of fixed interest research at Quilter Cheviot, says the Bank will be nervous about sparking another bout of inflation, by cutting rates too early:

“The BoE will be incredibly cautious to cut rates at a period when spending power is high for consumers and potentially triggering a fresh inflationary bout.

As such, today’s data will continue to put a dampener on a rate cut in June or August, with November remaining the likeliest date to see that first fall.

Full story: UK unemployment rises by 138,000 as labour market weakens

Larry Elliott

There are signs in today’s UK labour market report that wage growth has slowed, despite looking sticky.

Our economics editor Larry Elliott explains:

Annual growth in average earnings in the three months to April was 5.9% for all workers – unchanged on the three months to March – while for the private sector the growth rate eased from 6.1% to 5.8%.

In April alone, earnings overall were 5.5% up on the same month in 2023 compared with 6.4% in the year to March. For the private sector, the annual increase was 5% in April, down from 6.8% in the year to March.

Pay in real terms is rising because wages are rising faster than the annual inflation rate, which stood at 2.3% in April.

Here’s the full story: