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 n 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.
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