Living Standards in Focus as Starmer Pledges Key Commitments

Friday Feeling

Check out this week's playlist here!

Standards Of Living -  Fabrizio Vatieri

Pledges - Frequenc

French Exit - Dua Lipa

The Meaning Of Soul - Oasis

Martial Law - Lou Reed

Living Standards in Focus as Starmer Pledges Key Commitments

Yesterday, Sir Keir Starmer telegraphed his "plan for change" consisting of six key pledges that his government will seek to bring about over the next parliament. Here, the PM premised his commitment by stating that “the path of change is long… It is hard…And there are few thanks in the short-term…But mark my words – with this Plan for Change… We will stick to it…  Country first, party second”.

The six pledges – which often build on existing commitments - comprise of:

• Raising living standards by putting “more cash” in working people’s pockets.

• Constructing 1.5 million homes, while accelerating the approval process for at least 150 major infrastructure projects

• Ensuring that 92% of NHS patients receive treatment within 18 weeks

• Recruiting 13,000 additional police officers

• Ensuring that 75% of five-year-olds are prepared for school

• Achieving 95% clean energy by 2030

The topic of living standards continues to attract considerable attention in both Westminster and the press, not least with the figures indicating that the UK is suffering the most prolonged hit to living standards since records began. This comes amid sluggish progress in real incomes and growth.

In May, for example, the IFS issued a report which stated that the “UK went from one of the fastest growers for working-age incomes among developed countries pre-2007, to one of the slower performers”. This came as growth between 2007 and 2019 averaged 6% in the UK, well below Germany’s 16% and the US’ 12%.

Accordingly, average real pay has grown just 3.5% since 2009-10 which according to the IFS is growth that would have been expected to have taken place every 17 months, prior to the GFC.

Such sluggish real wage growth has meant that median income grew just 6% between 2009/10 to 2022/23. To give that figure some perspective, according to the IFS’ estimates, they would have forecast to see median income grow 30% over the same period had it not been for the GFC.

According to data from the Resolution Foundation, which analysed figures from the ONS and OBR, annual growth in real household income is expected to rise around 0.5% over the course of the five year parliament. This marks a considerable slowdown from the 2-3% figures recorded throughout much of the 1980’s and 1990’s.

As such, with real household disposable income facing severe headwinds since the GFC, and public sector services under considerable pressure, the task of raising living standards to a meaningful level will be a demanding one for Starmer, and one no doubt that the electorate will hold his government accountable for.

All Eyes on US Labour Data

At 1330 this afternoon, attention will turn to the release of US labour market data, as markets look for further insight into the health of the world’s largest economy ahead of the FOMC reconvening on 18th December.

As with previous month’s, given that the labour market has been the key drivers of inflationary pressure in the US, markets will also be paying particular attention to the extent to which today’s figures could impact policy makers considerations on the Fed’s future monetary pathway.

Presently, money markets are implying that there is around a 71% chance of a 25bps rate cut this month, an increase of around five percentage points since last week.

Last month, figures indicated that the US economy posted just 12,000 new jobs over October, well below forecasts which were pointing to something in the region of 150,000.

This represented the weakest print outside of the pandemic, and gave markets concern that the extent of the slowdown in the US labour market may be greater than expected.

Such concerns have been particularly apparent ever since the Bureau of Labour Statistics downwardly revising payrolls by 818,000 in the year ending to March 24, a few months ago.

As we looked at yesterday, today’s figures follow Wednesday’s ADP employment print which marginally missed expectations falling to its lowest level since August. Here, the ADP print – which looks at private sector payrolls from more than 25 million U.S. employees – indicated that the private sector posted 146,000 new jobs over the month, marking a meaningful slowdown from last month’s figures which posted 184,00 jobs.

As such all eyes remain on this afternoon’s print, which includes nonfarm payrolls (exp. 200,000), unemployment rate (exp. 4.2%) and earnings (exp. 3.9%)).