Good economic news sends shares higher
Thursday 17 July 1997
Across the Atlantic, equally good figures indicating steady growth and low inflation sent the Dow Jones Industrials index above its next psychological barrier of 8,000 in early trading.
Share prices in London were boosted by the underlying news on the economy, with some City analysts encouraged by the dip in earnings growth to hope that the Bank of England would not feel compelled to raise interest rates again next month.
There were few clues in the first set of minutes from the new Monetary Policy Committee, published yesterday. "But next month's decision is more finely balanced than the last three," said Geoffrey Dicks at NatWest Markets.
Most analysts still expect interest rates to rise again, however. Adam Cole at James Capel said the committee seemed to have put less weight on the strong pound than on the rapid pace of growth in services.
"The jobs market has become more flexible, but unemployment is falling enough to pose a significant threat to the Government's inflation target."
The headline unemployment claimant count declined by 36,500 last month to 1.6 million, its lowest level since April 1990. The unemployment rate fell to 5.7 per cent.
The Office for National Statistics (ONS) said the figures were no longer so distorted by the introduction of the Job Seekers Allowance, and the underlying decline in the claimant count was 25,000-30,000 a month.
The latest quarterly Labour Force Survey, widely used as a better indicator of jobs market trends, showed a 74,000 drop in unemployment in March to May. Although smaller than the fall in the claimant count during those months, it confirmed the general trend.
"It suggests that around 200,000 fraudulent claimants could have been knocked off the register in the last year," said Simon Briscoe at Nikko Europe.
Despite the continuing fall in unemployment, underlying average earnings growth dipped unexpectedly in May. The annual increase was 4.25 per cent compared with 4.5 per cent in the preceding three months.
Most economists took comfort from this decline, which was mainly due to this year's bonuses in financial services fading out of the figure. However, Ciarn Barr at Deutsche Morgan Grenfell said: "Do not be fooled by the temporary drop in earnings growth. Many sectors are already reporting skills shortages."
Inflation pessimists also noted that the number of unfilled vacancies at JobCentres stood at a record, climbing by 8,100 to 282,400 in June.
Other figures indicated that total employment has continued to rise, with manufacturing employment "stable", according to the ONS. The number of jobs in manufacturing fell by 1,000 in May after a 12,000 rise the previous month. Total employment climbed by 91,000 in the March to May quarter.
"A speedy bounce-back in earnings is likely," said Richard Iley at Hoare Govett.
Separately, the public sector borrowing requirement (PSBR) was pounds 4.8bn last month, pounds 1bn higher than the same month last financial year. The gap between government spending and revenues in the first three months of 1997/98 was pounds 8.5bn.
This is lower than at the same stage last year, but some City experts said the Government would be pushed to bring borrowing in on its pounds 10.9bn target this year.
Others blamed special factors for the slightly disappointing figures so far. The timing of both VAT receipts and of interest payments on gilts has changed.
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