Grim financial fortunes for British millennials, report confirms

A report from the Resolution Foundation indicates that Britons born since 1981 – known as the millennial generation – have suffered the second biggest financial hit in the developed world, topped only by Greece, according to the Guardian.

The report indicates a bleak picture across all developed countries, with the exception of the Nordic countries. Low salaries, unemployment and falling home ownership mean that millennials have experienced a financial reversal compared to the baby boomer generation.

Researchers also found that, when unemployment was removed as a factor, British millennials had experienced a more significant decline than young people in other countries.

The report states: “The scale of the pay squeeze for those aged under 30 is surpassed only by Greece.” In 2014, people born around 1980 earled 13% less than those born around 1970 had at the same age. In Greece, the figure was 25%.

The report says: “Generation-on-generation progress has been all but wiped out for millennials whose home ownership rate in their late 20s, at 33%, is half that for the baby boomers at the same age (60%).

“Falling home ownership for young people in their 20s is also found – albeit to a lesser extent – in Australia (a 12 percentage points fall from boomers to millennials) and the US (a six percentage point fall).”

The UK youth unemployment rate remains low, at around 9%, in contrast to levels of around 25% in countries to the south including Greece, Spain and Italy.

In most developed European countries, there is now a belief that young people will be worse off than their parents. The French are the most pessimistic, with only 10% believing they will fare better than their parents and 71% believing they will be worse off. The UK was fourth from bottom in the survey, with 22% of young people believing they will be better off than their parents and 50% saying they will fare worse.

UK households expect further interest rate hikes

A survey has found that most UK households expect borrowing costs to rise again following an interest rate increase in November, according to Reuters.

The Household Finance Index from data company IHS Markit fell to a seven-month low on January, from 42.9 in January to 42.2 in February. The index is seen as a gauge of financial wellbeing.

The survey was taken over six days starting on 8 February 2018, the day the Bank of England announced interest rates would rise more and sooner than previously expected. Researchers found that over 60% of households believed another rise would come within six months, up from 45% in January.

In 2017 the UK economy saw slowing rates of growth as higher inflation caused by a post-Brexit weakening of the pound began to bite on consumer spending power. The Bank of England has said it expects this pattern to ease off in 2018 as inflation slows and wage growth rebounds.

However, the survey results showed a nation in a gloomy mood. There was only a weak rise in income from employment in January, which could dampen the Bank of England’s expectation of wage growth in 2018. Figures from the Chartered Institute of Personnel and Development showed major employers expect to offer below-inflation pay rises in 2018.

In contrast, a Bank of England survey of major employers in the private sector suggested this year could see the largest pay rises in a decade, reaching 3.1%.

EU growth approaches pre-crisis levels

Figures from the European Union statistics office have confirmed that 2017 saw the bloc grow at its fastest pace in a decade, according to BBC News.

In 2017 the EU expanded 2.5%, the largest growth since 2007, which saw growth of 2.7%. The final quarter of 2017 saw the 28-nation block and 19-nation eurozone grow 0.6% compared with the Q3.

Q4 growth in Germany was 0.6%, France expanded 0.6% and Spain grew 0.7%. The figures were published by Eurostat, filling out estimates published at the end of January 2018 which were based on more limited data.

Ryan Djajasaputra, an Investec economist said that the growth was driven by the eurozone’s four core economies, Germany, France, Italy and Spain. However, Eastern European countries such as Latvia and Slovakia were also growing ‘particularly fast.’

Djajasaputra said the growth could be attributed to the strength of the European Central Bank’s stimulus policies, which have brought down the cost of borrowing. Confidence and employment levels are also recovering to pre-financial crisis levels.

BoE says UK jobless rate will fall in 2018

The level of unemployment in the UK is set to fall faster than the Bank of England (BoE) and other economists had predicted, according to a statement from BoE policymaker Michael Saunders reported by Reuters.

Saunders said that although the short-term outlook for growth was mixed, the economy could grow faster than the sustainable long-term trend, which would push up inflation.

The BoE figure said: “Balancing out the positives and negatives, the near-term outlook for the economy is not great, but nor is it terrible.”

Saunders said that any interest rate rises are likely to be limited and gradual. In November 2017, the BoE said financial markets should expect two more quarter-point interest rate rises by 2020, which would raise interest rates to 1%, up from the current level of 0.5%.

Unemployment rates are set to fall to 4% in 2018, down from 4.3% in the three months to October. This is lower than a BoE forecast in November, which predicted the rate would fall to 4.2% by the end of 2017 and remain at that level throughout 2018.

For the first time since 2009, wage growth in the UK is set to reach or exceed 3% this year. Fresh growth and inflation forecasts from the BoE are expected in February 2018.

2017 saw slowdown in UK house price rises

Figures from the Halifax confirm that UK house prices grew much more slowly in 2017 than in 2016, according to BBC News.

Halifax, the UK’s largest mortgage lender, said average prices rose 2.7% in 2017, as opposed to a 6.5% increase in 2016. This represents the lowest rise since 2012 on a calendar year basis.

The lender says that sluggish real wage growth and ongoing uncertainty about the nation’s economic future had contributed to the slowdown. The average property price at the end of 2017 was £225,021.

Halifax said that in December 2017 house prices fell by 0.6%, the first monthly decline on record since June 2017.

Russell Galley, managing director of Halifax Community Bank said: “Nationally house prices in 2018 are likely to be supported by the ongoing shortage of properties for sale, low levels of housebuilding, high employment and a continuation of low interest rates making mortgage servicing affordable in relative terms.

“Overall we expect annual price growth to continue in the range of 0-3% at the end of 2018.”

IFS warning: higher minimum wage will lead to more robots

The Institute of Fiscal Studies (IFS) has warned that increasing the living wage could prompt employers to automate more jobs. According to BBC News, plans to increase the minimum hourly rate to £8.50 by 2020 could backfire as robots replace human workers.

The report’s author Agnes Norris Keiller said that “beyond some point a higher minimum wage must start affecting employment. We do not know where that point is.”

The report’s argument is that it will become economically preferable for companies to invest in automated systems to complete tasks if labour costs become prohibitive. Raising minimum wages could therefore hurt low-paid workers rather than helping them.

Norris Keiller said: “The fact that there seemed to be a negligible employment impact of a minimum [wage] at £6.70 an hour – the 2015 rate – does not mean the same will be true of the rate of over £8.50 an hour that is set to apply in 2020.”

The IFS recommends that the impact of the minimum wage should be carefully monitored and advised against significant raises in the hourly rate as proposed by the Labour Party.

Some jobs generally paid at the minimum wage, such as hotel maids and nursery workers, would be challenging to automate. Other jobs such as retail cashiers and bank clerks would be susceptible to replacement by computerised systems. Retail, wholesale, manufacturing and administration are the top sectors threatened by automation.

Brexit agreement reduces economic risk, says BoE

The Bank of England has said that the risk of a disorderly Brexit has been reduced following a recent breakthrough in negotiations with the European Union, according to Reuters.

Policymakers at the Bank of England opted unanimously not to change interest rates from their current 0.5% level, one month after they were increased for the first time in over a decade.

The Bank of England said that in spite of economic data indicating the economy might be slowing slightly in late 2017, the annual budget issued by Chancellor Philip Hammond should produce moderate growth over the next few years.

Following difficult talks, Prime Minister Theresa May reached agreement with the European Commission last week regarding key points including payment to the European Union, rights of EU citizens within the UK and the border between the EU and UK. The parties will now move on to negotiating a transition agreement and trade deal for the longer term.

The Bank of England said that a deal “would reduce the likelihood of a disorderly exit, and was likely to support household and corporate confidence.”

Bank of England Governor Mark Carney had been the subject of criticism for focusing on the negative impact of Brexit rather than the opportunities it offers. Carney has countered that his role requires him to highlight publicly any risks he perceives to threaten the UK economy.

General Electric to cut 12,000 jobs

General Electric has announced that it will cut 12,000 jobs in the power section of its business, representing 18% of the division’s global workforce according to a BBC News report.

The industrial group says the job losses will be “painful but necessary.” The restructuring is a bid to save the company $1bn in 2018 as demand for power from fossil fuel sources reduces. In the UK, 1,100 jobs will be lost, mainly in Stafford and Rugby sites.

The restructuring will hit workers hard in other European sites; one sixth of the German and one third of the Swiss workforce is to be cut. The plans have been set out by the new GE chief executive John Flannery, who replaced Jeff Immelt in August 2017.

In October, the company cut its profits guidance following a 5% fall in third-quarter earnings to $1.8bn. The disappointing performance was said to be due to weak trading power in the power, oil and gas part of the business.

The company remains the world’s largest industrial business, employing over 55,000 people around the globe. However, structural changes have resulted in some parts of the business becoming less profitable.

Mark Elborne, head of GE operations in the UK and Ireland, said: “These are not proposals we ever make lightly and we understand that this news will be difficult for many people. Unfortunately, we believe that these changes are necessary to ensure that we can remain competitive and secure the future of GE Power in the UK.”

Hammerson retail centre owner to take over rival Intu in £3.4bn deal

Retail centre owner Hammerson is to take over its rival Intu in a £3.4bn deal. According to BBC News, the takeover will create the UK’s largest property company with a value of £21bn.

Intu is currently the owner of the Lakeside shopping centre in Essex and the Trafford Centre in Manchester. Hammerson is the owner of Brent Cross in London and Bicester Village designer outlet.

The combined group will target fast-growing markets in Spain and Ireland. As the news emerged, shares in Intu rose 19% while Hammerson fell 3%.

Hammerson chairman David Tyler said: “This transaction will deliver real value for shareholders. The financial strength of the enlarged group and its strong leadership team will make it well-placed to take advantage of higher growth opportunities on a pan-European scale.”

John Strachan, chairman of Intu said: “Intu offers high-quality retail and leisure destinations in the UK and Spain, which, when merged with Hammerson’s own top-quality assets in the UK, in France and in Ireland, present a highly attractive proposition for retailers and shoppers in Europe’s leading cities.”

The new firm is to be led by Hammerson chief executive David Atkins and chaired by Hammerson chairman David Tyler. Hammerson shareholders will own 55% of the combined firm and Intu shareholders will retain 45%.

GlobalData retail analyst Sofie Wilmmott said the combined group would have a stake in 12 of the UK’s 20 super-malls, defined as shopping centres with more than 20 million customers a year and more than 20m sq ft.

LSE CEO resigns, Chairman will not seek re-election

Xavier Rolet has resigned as CEO of the London Stock Exchange (LSE) and the organisation’s Chairman Donald Brydon will not seek to be re-elected, according to Reuters.

The announcement comes after a major shareholder, hedge fund TCI, called a shareholder meeting to challenge the LSE’s management succession plans. TCI accused Brydon of trying to push Rolet out, and sought to oust Brydon instead.

The LSE’s statement said there had been “a great deal of unwelcome publicity” around Rolet’s departure and that this “has not been helpful to the company.” Rolet said: “At the request of the board, I have agreed to step down as CEO with immediate effect. I will not be returning to the office of CEO or director under any circumstances.”

Rolet has been at the head of the LSE for more than eight years. He had previously said he would leave at the end of 2018. Brydon has confirmed he will not seek re-election as Chairman at the company’s AGM in 2019.

The LSE is facing a challenging period as some of its derivatives clearing business passes to Deutsche Boerse due to Brexit. There has been speculation that the LSE could be subject to a takeover bid by a rival such as ICE, although it may be difficult to obtain approval of competition authorities for such a deal.

UBS analyst Michael Werner said that Rolet leaving the LSE indicated an uncertainty about future direction: “With concerns increasing about the ability of (LSE unit) LCH to maintain share of the over-the-counter clearing business in a Brexit scenario, the timing of Mr Rolet’s departure could pose a challenge for the firm defending its market share from Deutsche Boerse.”