Key Info Hero

UK Labour Costs Revised

09 Oct 2017

Jack Turner, Research Analyst

This week we look into a driver for the Bank of England’s interest rate policy and three pieces of key data published last week. We flag three news headlines due this week and provide a 7IM portfolio update.


The UK's Office for National Statistics (ONS) revised its view of labour costs from an annual 1.6% on 6 October to 2.4% on 9 October. Unit labour costs are seen as the best estimate of firms’ staff costs to produce each unit of output. They also provide a useful indication of the financial pressure on firms to change prices. This upwards revision by the ONS will also support the Bank of England’s view on inflation and may pave the way for a rate rise in November.


The UK’s IHS Markit/ CIPS purchasing managers' index (PMI) for the services sector rose to 53.6, up from an 11 month low of 53.2 in August. The same index for the construction sector, however, contracted for the first time in 13 months, falling to 48.1 in September. Activity in the manufacturing sector also slowed slightly, with the PMI sliding to 55.9, compared to 56.7 in August. The slowdown in manufacturing was blamed on the weak value of Sterling which has led to costs rising for firms who import many of the raw materials.

The European Central Bank (ECB) has hinted that it might continue to be active in the region’s bond markets for longer than many expect. With a more concrete announcement anticipated on 26 October, some policymakers have signalled a wish to keep the bank’s quantitative easing programme in operation for most of 2018 and that while tapering is expected as early as January 2018, many think that any moves will be carried out extremely carefully to allow itself the option to change direction if the economy requires. Meanwhile, the view is that key ECB interest rates would remain at their present levels for an “extended period of time”, and “well past the horizon” of changes to quantitative easing efforts.

The US economy lost 33,000 jobs in September as employment in the leisure and hospitality sector shrank significantly, largely as a result of the disruption caused by hurricanes Harvey and Irma. This was the first fall in numbers since 2010 and was far weaker than the consensus 90,000 gain expected by economists. Data for July and August was also revised down by a total of 38,000. However, the unemployment rate declined to 4.2% -its lowest rate since February 2001. This showed that the storms had “no discernible effect” on the national jobless rate.

Following the latest formal quarterly review of its investment positions, 7IM made the following changes to its risk rated portfolios:

  • Trimmed our high yield bond positions by between 1 and 2%
  • Maintained our allocation to gold given that we still believe that investors may still need a safe haven in the event of another Trump related spat that causes global trade issues
  • Cut private equity holdings given their rich valuations/ prices which we believe are unlikely to rise further
  • Increased our cash positions in the Balanced and most risk averse strategies (Cautious and Moderately Cautious) in order to be able to take advantage of any market ‘corrections’ to the benefit of our clients. The cash positions in Moderately Adventurous and Adventurous remain the same.

10 Oct –UK Industrial Production // 10 Oct –Germany Balance of Trade // 11 Oct –US Federal Reserve Meeting Minutes


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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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