Robust UK labour data gives BoE some food for thought

20 Feb 2019

Robust UK labour data gives BoE some food for thought

UK labour data points to scarcity: UK ONS figures (released yesterday) showed that the unemployment rate had held steady at 4.0% in the three months to December, in line with consensus and Investec expectations. 

The detail of the release continues to point to robust labour market dynamics, with employment rising 167k over the period and vacancies reaching 870k (the highest since records began in 2001). Alongside this, headline average weekly earnings growth held steady at 3.4% (3m yoy), disappointing expectations for a firming to 3.5%. In addition to this, regular earnings (which excludes bonuses) similarly held steady at 3.4% (3m yoy), albeit after November’s outturn was revised up 0.1 percentage point. Taken altogether, yesterday’s figures suggest that labour scarcity is bidding up pay awards and that hiring intentions remain strong. To our minds, this should keep the Bank of England vigilant about the threat of domestically generated inflationary pressures and lead it to raise Bank rate further over the coming years. 

Brexit brief: Recent reports suggest that UK Prime Minister Theresa May is backing away from the so called “Malthouse compromise” which, amongst other elements, would have looked at alternatives to the Irish backstop. Instead Mrs May is now focusing her efforts once again on legal assurances that would reassure on the UK’s ability to unilaterally exit the Irish backstop. This shift comes amidst concerns that there was not the time to work on the Malthouse plan ahead of Brexit. It also comes ahead of PM May and Attorney General Cox heading for important talks in Brussels from today which are also sought to focus in on backstop assurances. 

Deal imminent?: Bloomberg is leading with the story that the Prime Minister is targeting a Brexit deal within days, however comments from key EU officials suggest there is much ground to cover. Focusing the mind of the Prime Minister is a vote in the UK Parliament on 27 February, which could become a “meaningful vote” if major steps forward are achieved in talks this week; if they are not this is likely to be a vote on a progress statement. Separately, whilst May is battling over in Brussels, Labour’s Jeremy Corbyn faces an ongoing battle amidst his own MPs, with an eighth Labour MP leaving for the new centrist The Independent Group yesterday.

GBP on front foot on high expectations 

The pound enjoyed one of its strongest trading days of the last 12 months against both the euro and US dollar yesterday. The move was sparked by positive employment data, which saw the number of people in employment in the UK hit its record high. The move was also boosted by weaker than expected German ZEW survey data, where the assessment of the current economic position hits its worst level in 4 years. The pound was further boosted by rumours that  progress was being made in negotiations with the EU over a revised backstop deal ahead of Theresa May’s meeting with Jean Claude Juncker this evening.  Overall, the pound gained over 1% against the USD on the day and 0.80% against the euro, and broke through key psychological levels in both currency pairs; trading below 0.87p in EURGBP and above 1.3000 in GBPUSD.

We would warn that periods of exuberance around the progress on Brexit tend to be burst by encounters with EU negotiators, so this afternoons meeting with Juncker could well provide a wake-up call. There are also rumours suggesting there could be a number of Tory Remainers defecting to the newly founded Independent Group over the course of the week, which would make Theresa May’s job of getting her deal approved even more difficult.


Irish Economy: 50,500 new jobs in 2018


The latest Labour Force Survey release from the CSO shows that total employment in Ireland was +2.3% y/y in Q418, a moderation from the 3.0% y/y growth seen in Q318.


There was an increase in total employment of 50,500 during 2018 with further analysis of the constituents of the growth highlighting the strength in the labour market at present. The vast majority of the y/y growth came in the form of full-time employment, which increased by 48,200 in the year (+2.7%), while part-time employment expanded by 2,300 (+0.5%).


Elsewhere, the report details the broad-based nature of employment growth, with employment increasing in 10 of the 14 economic sectors over the year. The largest rates of increase were recorded in Administration and Support Service (+12.6% y/y) and Construction (+7.9% y/y, reflecting expanded output). There were also notable increases in Education (+6.5% y/y); Transportation and Storage (+6.3% y/y, driven by the export boom); Public Administration and Defence (+5.9% y/y, due to a loosening of government spending) and Accommodation and Food Storage (+3.5% y/y). The sectors that saw the biggest contractions were Agriculture, Forestry and Fishing (-5.7% y/y) and Other (unclassified) sectors (-2.5% y/y).


Unemployment decreased by 15,200 (-10.5% y/y) in the year to Q4 2018 bringing the total number of persons unemployed to 128,800. This is the 26th quarter in succession where unemployment has declined on an annual basis. The seasonally adjusted unemployment rate was 5.7% in Q4 2018 and, in a positive sign for the economy, the fall during the year was driven by a reduction in the long-term unemployment rate, which decreased from 2.5% to 2.1% over the year.


While it is a little disappointing to see the pace of employment growth slow in Q4, it is perhaps not surprising given that uncertainties around Brexit intensified as we headed towards the end of the year, while the outlook for global growth also softened somewhat. Nevertheless, full-year employment growth of 2.3% was still a positive outcome and the quality of the growth was also encouraging.


Hibernia REIT – brings its HQ to market 


Hibernia REIT has placed two office suites in South Dock House on Hanover Quay on the market, for either letting or sale, according to this morning’s Irish Times.


Hibernia has appointed BNP Paribas Real Estate to handle the transaction who are quoting €62.50 psf for a lease or a combined €10.8m for a sale. One of two suites coming to the market is currently occupied by Hibernia itself as its HQ (it is set to relocate its offices to its recently
completed development at nearby 1WML) and extends to 5,640 sq.ft. An adjoining suite on the first-floor of the property is occupied by financial services firm Guggenheim on a lease that expires in 14 months. This unit is 4,499 sq.ft. in size and, between the two suites, there are 10 basement car park spaces that rent at €4,000 each p.a.


Given the excellent location in Dublin’s south docks, and the positive market conditions, we expect strong demand for this modern space. While small in the context of Hibernia’s overall portfolio (its in-place office portfolio comprises 1.0m sq ft of space), its strong balance sheet gives Hibernia the flexibility to accept a lease or sale in this case. 


Glanbia: Strong FY18 results

Glanbia issued a strong set of FY18A numbers 3.9% ahead of our and consensus expectations at the EPS line, reporting a 4.5% increase in adj. EPS to 91.01c (INVe 87.57c; consensus 87.6c) from a 0.6% increase in EBITA to €284.9m (INVe €282.7m; consensus €283.0m) and a flat revenue outturn at €2.39bn (INVe €2.35bn; consensus €2.36bn). The dividend has been increased by 10% to 24.2c (INVe 24.2c). Looking forward, management is guiding EPS growth of in the 5% to 8% range on a constant currency basis, impacted, at this stage by a 3% translational tailwind. 

At the divisional level, Glanbia Performance Nutrition (GPN) reported a 2.0% increase in EBITA to €173.1m (INVe €170.8m) from a 5.2% increase in revenue to €1.18bn (INVe €1.13bn). LFL revenue grew 5.0% (INVe 2.9%) where strong volume growth of 9.1% (INVe 7.0% expected) was clipped by a weak pricing environment (-4.1% versus INVe at -4.2%). Acquisitions contributed 4.5% to GPN revenue (INVe 1.8%) tempered by a 4.3% FX headwinds (INVe -4.3%). 

Glanbia Nutritionals reported a 1.5% decline in FY18A EBITA to €111.8m (INVe €111.9m) from a 4.7% decrease in reported revenue to €1.21bn (INVe €1.22bn). LFL revenue decreased by 0.6% (INVe +1.2%) where, like in GPN, volume growth of 4.6% (INVe 6.5%) was tempered by a weak pricing environment (-5.2% versus INVe at -5.3%). GN experienced a similar FX headwind as GNP, at -4.2% (INVe -4.7%) and there was no contribution from acquisitions. Glanbia’s share of profit after tax from JV’s was €45.3m (INVe €42.5m).

FY18 results have come in slightly ahead of our and market expectations, where outperformance on GPN volume growth has more than compensated for poorer than expected GN volume growth. The other area of outperformance was the contribution from acquisitions.


Economic releases


19.00   US        FOMC minutes (Jan meeting)