Sterling dumps as wage growth stalls

The UK jobs report was a mixed bag. On the positive side, the labour market continues to tighten, as unemployment fell to 4.2%, better than expected and the lowest level since 1979. However, average weekly earnings in the three months to February stalled at 2.8%, in line with the previous months, but lower than the 3% forecast.

The UK jobs report was a mixed bag. On the positive side, the labour market continues to tighten, as unemployment fell to 4.2%, better than expected and the lowest level since 1979.

However, average weekly earnings in the three months to February stalled at 2.8%, in line with the previous months, but lower than the 3% forecast. Given inflation in February was 2.7%, wage growth finally overtook inflation. 

This is good news for the hard-pressed consumer, whose wages have been eroded by elevated prices following the devaluation of the pound post Brexit, dampening the ability of the consumer to spend.

Whilst today’s stalling of wage growth is disappointing it is by no means a disaster, sterling had run away with itself prior to the release, and the disappointment has brought pound traders back to earth. 

However, in the bigger picture, the consumer is still in a stronger position than before, which means we could still expect a more hawkish BoE when they meet in May.

The pound fell sharply on the release after hitting $1.4377, its highest post Brexit referendum level. GBP/USD is now trading lower on the day, breaking an 8-day winning streak, its longest in 2018.  

Investors will now turn their attention towards tomorrows inflation data to see whether prices continue to fall and the squeeze on the consumer is on track to continue easing.

ABF profits limited by sugar business

After an initial sell off, shares in Associated British Food have jumped 2.2% in early trade after posting a 3% increase in revenue to £7.4 billion in H2 2017, whilst adjusted profit before tax was up 1% to £628 million for the period, down significantly from H1’s £895 million. 

Whilst sales and profits grew broadly across the firm, the standout exception was the sugar business. 

The decline in sugar operations due to lower EU sugar prices was to blame for the 30% dip in profits; fortunately, an acceleration in profits at Primark offered a helping hand to ABF and was cheered by investors.

Whilst the rest of the UK high street are feeling the pain of the bitter winter Primark has once again proved to be a remarkable exception. 

Primark delivered an 8% increase in revenue to £3.5 billion and 6% rise in operating profits to £341 million, thanks to improved margins, better buying and a weaker dollar, helping ABF lift its dividend 3% to 11.7p. 

Primark’s success is all the more extraordinary given the struggles other budget retailers Select and New Look are experiencing.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.