Rolling coverage of the latest economic and financial news, as grocery chain keeps paying Real Living Wage to staff
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Sainsbury’s is to hike the wages of staff across its supermarket by an inflation-busting 5%, after reporting its “biggest ever Christmas”.
The UK’s second-largest grocer has just announced it will raise pay for its hourly-paid colleagues by 5% over the next year, meaning staff will continue to receive the real Living Wage, which is higher than the national minimum wage.
Simon Roberts, chief executive of J Sainsbury plc, says:
“Our people are fundamental to achieving our Next Level Sainsbury’s plan and we are pleased to announce that we will raise pay for our hourly-paid colleagues by five per cent in the year ahead, split into two separate increases to help manage a particularly tough cost inflation environment.
We believe in rewarding our colleagues well for delivering leading service and productivity and we will be the best paying UK grocer from March.”
The increases will come in March, and in August.
It means pay for hourly-paid staff at Sainsbury’s and Argos will increase to £12.45 per hour in March and then £12.60 per hour by August, matching the Real Living Wage
Pay for those in London will rise to £13.70/hour in March, and again to £13.85 in August.
Pay rises are welcome news for UK workers who have struggled through a long cost-of-living squeeze. But they cause anxiety at the Bank of England, which fears that rising wages could fuel inflation, above its 2% target.
Yesterday, bakery chain Greggs said two-thirds of its workers were handed a 6.1% pay rise this month.
Sainsbury’s also reported that it won grocery market share for the fifth consecutive Christmas, with like-for-like sales up 3.8% in the six week’s to 4th January.
Its Argos business lagged, though, with comparible sales up 1.1% in the eight weeks to 4th January.
It appears that Sainsbury’s benefitted from a last-minutes day to the shops.
Roberts says:
Customers shopped later than ever and we achieved our highest ever sales in the final days before Christmas.
It’s a big day for global investors, as December’s US payrolls report is released – showing how many new jobs were created last month.
A strong jobs report might drive up the US dollar, and weaken US debt, with a potential knock-on impact on other government debt too.
UK government bonds are also in the spotlight after a turbulent week, in which Britain’s borrowing costs hit their highest level in decades. The market calmed a little yesterday, but anxiety over the UK’s fiscal outlook remains high.
The chancellor, Rachel Reeves, has travelled to China in an attempt to build closer economic ties with Beijing, despite calls from opposition parties to stay home and tackle the turmoil in the markets.
As the Guardian reported last night, Reeves is considering imposing steeper cuts to public services to repair the government’s finances, rather than raising taxes or borrowing.
7.45am GMT: French industrial production data for November
1.30pm GMT: US non-farm payroll jobs report for December
3pm GMT: University of Michigan’s US consumer sentiment index for January
Rachel Reeves may have to consider ‘very severe’ spending cuts if the recent rise in UK borrowing costs eats away at her fiscal headroom, a former Bank of England deputy governor has warned.
Sir John Gieve told Radio 4’s Today Programme that the recent bond market turmoil was not in response to UK policy changes – instead, he argues, gilt yields have simply been following the US market.
Gieve says:
This is very different from the Truss debacle, in that it’s not a response to anything we’ve done in the UK.
Gieve explains that the UK’s long-term borrowing costs tend to follow US government debt (Treasury yields have risen as investors have anticipated higher inflation under Donald Trump).
Before Reeve’s budget, US 10 year Treasurys were yielding 3.6pc, now yielding 4.7pc. Seems to me that if there is a risk of a Liz Truss moment it is in the US. At least the UK has a plan for debt/deficit reduction. Zero evidence of that in the US!
Gieve says the UK is “a bit more vulnerable” to bond market moves, as it already spends over £100bn per year on debt interest, and last autumn’s budget showed a marked increase in borrowing over the next few years.
Yesterday, Treasury minister Darren Jones insisted repeatedly that the UK was fully committed to its fiscal rules, to reassure markets.
Gieve says, though, that it is becoming “clearer and clearer” that this will be “very difficult”, and require a lot of “new, difficult, decisions”.
That’s because October’s budget showed a substantial increase in spending this year, but then a slowdown to a little over 1% per annum in subsequent years.
So, if health and defence spending have to rise by more than 1%, this will require cuts in many other programmes, and those have not been announced.
Gieve says:
“The choice she [Rachel Reeves] is going to face in the spending review [due in June] and then the budget in the autumn, is ‘can I raise borrowing?’ – and the increase in interest rates that’s happened now, if it continues, will decrease her scope for doing that within her rules.
‘Or do I increase taxes again?
Or do I actually institute some very severe reductions and squeezes on public services?’”
The bottom line, Gieve adds, is that if the UK economy doesn’t grow by much more than 1%, we can’t afford to increase spending by much more than 1%.
That’s why growth is so important, but recent figures have been “discouraging”.
A burst in housebuilding might provide a short-term boost to growth, he suggests.
The City seems unimpressed by Sainsbury’s financial results, even though it reported sales growth ahead of the wider market for seven consecutive quarters.
Sainsbury’s are the top faller on the FTSE 100 share index at the start of trading, down 2.5%.
Investors may be disappointed that Sainsbury’s didn’t lift its profit forecasts today.
Instead, the company says it expects to meet forecasts for underlying operating profits, and hit the midpoint of its guidance range of £1.01bn to £1,06bn.
All eyes are on the UK government bond market today, where the current bond market selloff has been particularly acute.
And in early trading, bond yields are nudging slightly higher, although it’s a small move.
The yield (or interest rate) on 10-year UK gilts is up 2 basis points, or 0.02 percentage points, at 4.82%.
Long-dated 30-year UK bond yields are almost 2bp higher, at 5.38%.
Jim Reid, market strategist at Deutsche Bank, says:
The global bond selloff showed few signs of letting up over the last 24 hours, with long-term borrowing costs continuing to move higher across the board.
The UK was particularly in the spotlight, as its 10yr gilt yield (+1.5bps) hit another post-2008 high of 4.81%, whilst the 30yr yield (+2.2bps) hit a post-1998 high of 5.37%. But even though the UK might appear the most striking in terms of when yields last traded at these levels, other countries have experienced a similar pattern too.
For instance, the French 10yr yield hit its highest since October 2023, whilst the German 10yr bund yield hit its highest since July. In the meantime, US Treasuries showed some signs of stabilising, but even there the 10yr yield is still at 4.69% this morning, on track to close at its highest level since April, and Japan’s 10yr yield is at its highest since 2011.
UK unions have welcomed Sainsbury’s decision to lift pay by 5% next year, matching the Real Living Wage.
The move means pay will increase by over £1,100 a year for full time hourly-paid colleagues by August, the grocer reports.
The Usdaw union says it’s only right that staff are fairly rewarded with a living wage.
Bally Auluk, Usdaw National Officer, says:
“The working relationship between Usdaw and Sainsbury’s continues to strengthen, and we are pleased that the company has again worked closely with our Union’s representatives, during the recent pay consideration meeting.
The business has decided to make a pay award totalling 5 per cent, despite lower inflation rates than last year and following on from previous significant pay increases.
The cost of living continues to be a key concern for our members, so the business’ decision to respond in such a positive manner, by matching the Real Living Wage once more, is a welcome one for our members.”
The pound is a little weaker this morning, but higher than the lows touched during Thursday’s choppy trading.
Sterling has dipped by a third of a cent to $1.227 in early trading, towards the 14-month trough touched yesterday.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, fears the pound is set for a deeper selloff, as investors note that chancellor Rachel Reeves is losing her fiscal headroom as borrowing costs rise.
Ozkardeskaya explains:
The UK – which has a huge debt, dismal productivity and growth and a thick layer of unnecessary regulation like continental Europe – still has a debt-to-GDP level lower than other developed economies like France, Italy, Spain and Japan! But the country faces relatively tougher market reaction to its political decisions.
I have the feeling that investors somehow continue to blame the UK for its decision to quit the EU.
But anyway, the selloff in gilts and the pound may have cooled down yesterday, but cost of boosting growth has become significantly more expensive for the UK government, meaning that we may not see the UK perform as well as it did last year. And that sets the pound outlook negative at the early weeks of the new year.
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Sainsbury’s is to hike the wages of staff across its supermarket by an inflation-busting 5%, after reporting its “biggest ever Christmas”.
The UK’s second-largest grocer has just announced it will raise pay for its hourly-paid colleagues by 5% over the next year, meaning staff will continue to receive the real Living Wage, which is higher than the national minimum wage.
Simon Roberts, chief executive of J Sainsbury plc, says:
“Our people are fundamental to achieving our Next Level Sainsbury’s plan and we are pleased to announce that we will raise pay for our hourly-paid colleagues by five per cent in the year ahead, split into two separate increases to help manage a particularly tough cost inflation environment.
We believe in rewarding our colleagues well for delivering leading service and productivity and we will be the best paying UK grocer from March.”
The increases will come in March, and in August.
It means pay for hourly-paid staff at Sainsbury’s and Argos will increase to £12.45 per hour in March and then £12.60 per hour by August, matching the Real Living Wage
Pay for those in London will rise to £13.70/hour in March, and again to £13.85 in August.
Pay rises are welcome news for UK workers who have struggled through a long cost-of-living squeeze. But they cause anxiety at the Bank of England, which fears that rising wages could fuel inflation, above its 2% target.
Yesterday, bakery chain Greggs said two-thirds of its workers were handed a 6.1% pay rise this month.
Sainsbury’s also reported that it won grocery market share for the fifth consecutive Christmas, with like-for-like sales up 3.8% in the six week’s to 4th January.
Its Argos business lagged, though, with comparible sales up 1.1% in the eight weeks to 4th January.
It appears that Sainsbury’s benefitted from a last-minutes day to the shops.
Roberts says:
Customers shopped later than ever and we achieved our highest ever sales in the final days before Christmas.
It’s a big day for global investors, as December’s US payrolls report is released – showing how many new jobs were created last month.
A strong jobs report might drive up the US dollar, and weaken US debt, with a potential knock-on impact on other government debt too.
UK government bonds are also in the spotlight after a turbulent week, in which Britain’s borrowing costs hit their highest level in decades. The market calmed a little yesterday, but anxiety over the UK’s fiscal outlook remains high.
The chancellor, Rachel Reeves, has travelled to China in an attempt to build closer economic ties with Beijing, despite calls from opposition parties to stay home and tackle the turmoil in the markets.
As the Guardian reported last night, Reeves is considering imposing steeper cuts to public services to repair the government’s finances, rather than raising taxes or borrowing.
7.45am GMT: French industrial production data for November
1.30pm GMT: US non-farm payroll jobs report for December
3pm GMT: University of Michigan’s US consumer sentiment index for January
