Key eventsShow key events onlyPlease turn on JavaScript to use this featureAfternoon summaryWith the pound trading firmly over $1.31 for the first time since April 2022, it’s time to wrap up.Here are today’s main stories, firstly on this morning’s GDP report:….the state of the UK public finances……The cooling housing market:And also:Government bonds are also strengthening, on the back of signs that US inflation pressures are easing.The yield, or interest rate, on five-year UK government bonds has dropped to its lowest since 29 June at 4.568% (yields fall when prices rise).Hunt: Our plan will get inflation downChancellor Jeremy Hunt has declared that the UK will match the US, Germany and France and get inflation down.He made the pledge in a Twitter thread, explaining today’s deal on public sector pay:Public sector pay: the economic rationale for our decision today…a thread.Firstly we want to do right for public servants, particularly teachers who have been raising standards in schools & NHS workers on the frontline in the pandemic.— Jeremy Hunt () July 13, 2023We get that they are angry at the way inflation has eroded their pay (as it has done for everyone).But if we give them an award that fuels inflation, we will just have the same disputes next year.— Jeremy Hunt () July 13, 2023That means that if we accept the independent pay review body recommendations, we cannot fund it with extra borrowing which pumps more inflationary demand into the economy.— Jeremy Hunt () July 13, 2023Hence our decision today: to accept the pay review body recommendations (one of the biggest cash increases in public sector pay packets ever), and fund it not by borrowing but by finding savings in department budgets.— Jeremy Hunt () July 13, 2023That means finding an additional £2bn this year and £3bn next year from department budgets to fund today's decision, and I am grateful to my Cabinet colleagues for engaging to make this possible.— Jeremy Hunt () July 13, 2023Yesterday US inflation fell to 3%. In Germany it is 6.8% and France it is 5.3%. We are following the same plan as them - making sure decisions on interest rates, tax and spend all work together to reduce inflation. Stick to that plan and inflation will fall here too.— Jeremy Hunt () July 13, 2023(UK inflation was 8.7% in May, four times over the Bank of England’s target of 2%)But getting there is tough. So we will continue to support families with an average of £3,300 of cost of living support this year and last, the mortgage charter for people struggling with higher mortgage payments & action by regulators when price falls are not being passed on.— Jeremy Hunt () July 13, 2023Haleon plans sweeping job cuts a year after being spun off from GSKJulia KolleweThe company behind Sensodyne toothpaste, Centrum vitamins and Panadol painkillers plans widespread layoffs in the UK and around the world a year after being spun off from Britain’s second-biggest drugmaker GSK, my colleague Julia Kollewe reports.Weybridge-based Haleon, which has 24,000 staff across 170 countries, plans to cut hundreds of roles in the UK and potentially thousands worldwide, the Guardian understands.The company is one of the world’s biggest consumer healthcare groups and sells over-the-counter drugs, vitamins and oral care products.Staff were briefed on the redundancies this week in a series of meetings and a consultation process, which started on Wednesday, will close on 25 August. Some people will be offered other roles within the company.Those who are laid off are expected to leave Haleon in September.Here’s the full story:Updated at 15.19 BSTThe euro has also rallied against the dollar.The single currency has gained 0.5% to $1.1195, its strongest level since the end of February 2022.And against a basket of currencies, the dollar has dropped to a new 15-month low this afternoon.The dollar continues to weaken after today’s drop in US PPI wholesale inflation, on top of yesterday’s fall in consumer price inflation (CPI) to 3%.PPI also came in under expectations, another notch in soft landing’s favor. Still, the market has a 25bp rate hike at 92% probability for the Jul 26 meeting.Feels kinda crazy given all of the indicators showing inflation dropping, but I guess if they feel they can, they will. https://t.co/5B3Gimr4Na— Rick Abell () July 13, 2023
Pound on longest winning streak of 2023Sterling is on track for its 6th daily gain against the US dollar in a row, which would be its best run since last December.The pound has rallied from $1.27 a wek ago to $1.31 today, as traders have calculated that UK interest rates will keep rising this year, while US rates could be near their peak.Pound hits $1.31Sterling has continued to climb against the US dollar, following that fall in US wholesale inflation just reported.The pound has just hit $1.31 for the first time since April 2022, adding to its earlier gains, up around a cent today.Back in the UK, the government has paid a hefty price to borrow in the financial markets today.Reuters’ David Milliken has the details:
Britain sold £3.5bn of inflation-linked government bonds maturing in 2045 via a syndication on Thursday, for which investors will receive a yield of 1.241% on top of inflation, the UK Debt Management Office said.
The real yield is the highest for any index-linked gilt sold via syndication since these sales began in 2005, although more regular auctions have seen higher yields, most recently in October 2022 when markets were shaken by former prime minister Liz Truss’ “mini budget”.
US wholesale inflation slows to a crawlJust in: Price pressures across the US economy relaxed last month, in a sign that inflation is easing.US producer price inflation, which measures what goods makers and service providers charge, fell to just 0.1% per year in June.That’s down from 0.9% year-on-year in May, and 11.2% in June 2022 when companies were hiking prices at a hot pace.This fall in wholesale inflation should feed through to consumers in coming weeks and months.BREAKING: PPI inflation falls to 0.1% in June, below expectations of 0.4%.Core PPI inflation fell to 2.4% in June, below expectations of 2.6%.This is the first time PPI inflation has come in below 1.0% since January 2021.Yet another sign that inflation is falling quickly.— The Kobeissi Letter () July 13, 2023
US Producer Price Inflation Rate (PPI), YoY % Change...Jun 2022: 11.2%July 2022: 9.7%Aug 2022: 8.7%Sep 2022: 8.5%Oct 2022: 8.2%Nov 2022: 7.4%Dec 2022: 6.4%Jan 2023: 5.7%Feb 2023: 4.7%Mar 2023: 2.7%Apr 2023: 2.3%May 2023: 1.1%Jun 2023: 0.1%12 consecutive declines.— Charlie Bilello () July 13, 2023
Over in the US, the number of people filing new unemployment claims has dropped.There were 237,000 fresh ‘initial claims’ for jobless support last week, down from 249,000 a week earlier, and lower than expected.This implies American firms are continuing to hold onto staff, despite the pressure from rising interest rates…Initial jobless claims at 237k vs. 250k est. & 249k prior; continuing claims at 1.729M vs. 1.72M est. & 1.718M prior … greatest increases in NY (+8.2k), OH (+1.7k), & IA (+1.5k); greatest decreases in NJ (-3.4k), CT (-1.6k), & MI (-1.5k) pic.twitter.com/sYzmkXvfYB— Liz Ann Sonders () July 13, 2023Today’s fiscal risks and sustainability report “does not make for cheerful reading”, points out Paul Johnson, director of the Institute for Fiscal Studies:OBR fiscal risks and sustainability report does not make for cheerful reading. Here they illustrate how rising inflation/interest rates have hit UK public finances much harder than other countries https://t.co/Iq61duAPAJ— Paul Johnson () July 13, 2023
The UK Government has seen a larger and more rapid rise in its debt servicing costs than other advanced economies. This is due to our larger rise in interest rates, larger share of inflation-linked debt, and shorter effective maturity #OBRfiscalrisks pic.twitter.com/PyBGLi91GA— Office for Budget Responsibility () July 13, 2023
Rishi Sunak agrees to public sector pay rises... without raising budgetsMillions of public sector workers to get pay rise of around six per cent, the UK government has decided, but the increases must (somehow) be found from within existing budgets.Under the plan, teachers will get a rise of 6.5%, while junior doctors and NHS consultants will get 6% and armed forces personnel at least 5%.Rishi Sunak is asking public-sector trade unions to end the strikes that have weighed on the economy in recent months, saying the offer is final. The teaching unions have said they will recommend the deal to their members, meaning strikes can be called off.Aubrey Allegretti, our senior political correspondent, reports:
Police officers, junior doctors and teachers in England are among those who would benefit after the prime minister, Rishi Sunak, accepted all the recommendations of the independent pay review bodies.
Senior government figures are understood to have been concerned about the effects of the pay boost on stubbornly high inflation.
Earlier this week, the chancellor, Jeremy Hunt, ruled out providing any extra money funded through borrowing. The move will leave departments facing difficult decisions about how to reallocate spending, with potential knock-on effects for frontline services cuts.
The Treasury had budgeted for pay rises of about 3.5%, meaning between £3bn and £5bn will need to be found across Whitehall to make up the shortfall…
Updated at 12.57 BSTUK rules allowing agency workers to cover strikes are unlawful, court saysOver in the high court, a judge has quashed legal changes brought by the government to let agency staff fill in for striking workers.It’s a victory for a group of unions, including Aslef, the RMT and Unite, who joined in legal challenges to “strike-breaking” regulations announced last summer by the government as it faced widespread industrial action across rail and other sectors.In a verdict delivered today, Mr Justice Linden ruled that the approach taken by ministers was “so unfair as to be unlawful and, indeed, irrational.”In a written ruling, Mr Justice Linden said he would “quash the 2022 regulations”.Unions argued that the changes to regulations announced by the then business secretary, Kwasi Kwarteng, undermined the right to strike, and were made unlawfully.Responding to the judgment, Unite general secretary Sharon Graham said:
“This is a total vindication for unions and workers. The government’s decision to allow employers to recruit agency workers to undermine legal strike action was a cynical move to back their friends in business and weaken workers’ legal rights to withdraw their labour.
“It was entirely counterproductive as rather than weaken industrial action it has hardened attitudes and unnecessarily extended strikes. This ill-thought out, divisive legislation must be consigned to the dustbin of history.”
Full story: Fast-rising borrowing costs leave UK public finances at great risk, warns OBRRichard PartingtonThe UK’s public finances are in a “very risky period” after a series of major shocks that have driven the nation’s borrowing costs to rise at the fastest rate in the G7, the Treasury’s tax and spending watchdog has warned.The independent Office for Budget Responsibility warned national debt could surge to more than 300% of gross domestic product (GDP) by the 2070s, up from about 100% today, and warned the government is not taking measures to make big changes in the short term.It said the government faced a “number of challenges” in meeting Rishi Sunak’s target to get the national debt falling as a share of national income within five years’ time.Despite promises made by successive Conservative-led governments to reduce Britain’s debt pile, the OBR said the objective was only achieved in three out of the last 12 years – and by a relatively small 3.4 percentage points in total.In a downbeat assessment in its latest fiscal risks report, the OBR said other governments were also facing heightened pressure on their public finances from rising global interest rates pushing up the cost of servicing debt.However, it warned the UK had the highest level of inflation-linked debt among G7 economies, making it more vulnerable to shocks, with debt interest costs rising in the UK at twice the pace of any country in the club of advanced economies between 2019 and 2022.Rachel Reeves, the shadow chancellor, said:
“This report just how far we are falling behind our peers, how exposed our economy is and again highlights that the government is failing to take action in areas like energy security to help get bills down.”
Growing sickness is among gravest fiscal risks facing UKToday is a “watershed moment” as the Office for Budget Responsibility recognises that growing sickness is among the gravest fiscal risks faced by UK, says the IPPR thinktank.Chris Thomas, head of the IPPR’s landmark Commission on Health and Prosperity, says:
“Today, the OBR has concluded that better health is one of the clearest paths to prosperity in the UK – but that, through a decade of austerity, a global pandemic and an NHS crisis, the UK is off-track and well behind other comparable countries. On the same day, NHS waiting lists have hit new highs, and the NHS in England has admitted it may not meet the prime minister’s pledge to reduce these before the next election.
“This is a watershed moment. IPPR research also shows that sickness is harming earnings, driving millions out of the labour market, and blocking economic justice across the country. On the flipside, these challenges represent opportunities – if the right policies, and political courage, can be found.
“If we want prosperity for all, we must deliver good health for all. We call on ministers to commit to a health equivalent of net-zero – a 30-year commitment to make the UK the healthiest country in the world. That means a bold agenda for NHS reform, but also putting in place the foundations of a healthy life: better housing, top quality education and good work.”
Updated at 12.29 BSTUK second-worst in G7 for burden of diseaseThe OBR has also highlighted that the UK has had the second-highest burden of disease in the G7 after the US since 1990.Today’s Fiscal Risks report shows that the UK has the lowest healthy life expectancy at birth of any major developed economy bar the US, and had a slower rate of progress over the 2010s than all apart from the US and Canada. Photograph: OBRImprovements have stalled across most countries since 2010, and the disease burden rose slightly in the US, Canada and the UK in the years immediately prior to the pandemic, the report says.The OBR points out that the UK has persistently higher mortality rates from cancers and respiratory diseases than other advanced economies, and higher rates of adult obesity than Germany, France, Italy and Japan, Photograph: OBRUpdated at 12.11 BSTAdverse shocks to the UK’s financial health seem to have become “more frequent, severe, and costly,” the Office for Budget Responsibility warns today.Today’s Fiscal Risk report says the UK has been hit by a succession of shocks – the Covid pandemic, the energy and cost-of-living crisis, and the sudden interest rate rises in 2022. They have proved twice as costly as all similar shocks in the second half of the last century.It says:
So far this century, we have experienced three major shocks, adding around 20 per cent of GDP to debt on average. This is twice the intensity and twice the fiscal cost of the shocks that the UK witnessed over the latter half of the 20th century.
If such shocks were to be repeated into the future, this could add a further 125 per cent of GDP to the already unsustainable levels of debt implied by the above baseline dynamics taking debt to 435 per cent of GDP by the mid-2070s.
Photograph: OBR