Pound and UK bonds plunge after strong US jobs report; UK gas storage levels are ‘concerningly low’ – business live

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Pound hits new 14-month low as US jobs report beats forecasts

Newsflash: the US economy added many more jobs than expected last month, a development that has hammered the pound.

Non-farm payrolls rose by 256,000 in December, the U.S. Bureau of Labor Statistics has reported today. That smashes forecasts of a 160,00 increase, and has pulled the US unemployment rate down to 4.1%, from 4.2%.

Employment trended up in health care, government, and social assistance, and retailers also added jobs in December, the BLS reports.

This indicates the US labor market is in a stronger position than expected – good news for Donald Trump as he prepares to be sworn in as US president later this month.

BUT it will make it harder for the US Federal Reserve to justify cuts to interest rates.

As a result, the dollar is rallying – and this has sent the pound plunging by a whole cent to $1.22, the lowest since November 2023.

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Key events

Full story: US job market soars past expectations

Lauren Aratani

The US labor market expanded strongly in the last jobs report of the Biden administration, according to new data released on Friday.

The number of new jobs added to the economy accelerated to 256,000 in December, up from 227,000 in November, soaring past expectations. The labor market last month was bolstered by new jobs in healthcare, retail and government.

As the final jobs report of his administration, it’s a blowout for Joe Biden, who struggled to rally support around his economic agenda despite the economy strengthening after the pandemic.

Other data points released in the last week pointed to strength in the labor market. The Jobs Openings and Labor Turnover Survey (Jolts) showed that job openings topped 8m in November, soaring past expectations.

Another report from outsourcing firm Challeger, Gray & Christmas reported a 33% decrease in layoffs in private firms in December, going from around 57,000 cuts in November to 38,000 layoffs in December.

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Strong US jobs data is ‘punishing news’ for UK gilts

The market reaction to today’s strong US jobs report is a sign that the peak in government bond yields has not been reached, yet, warns Seema Shah, chief global strategist at Principal Asset Management.

That is bad news for the UK, as Shah explains:

“The important payroll beat will be good news for the U.S. economy and the US dollar, unwelcome news for equities as they seek interest rate relief, and punishing news for global bond markets, particularly UK gilts.

U.S. labor market strength is clearly a continuing theme and suggests that the economy continues to thrive. The Fed can be very comfortable staying put in January and will need some meaningful downside inflation surprises or reversals in upcoming jobs reports to wake them from rate slumber in March.

For global bonds, the strength of the U.S. jobs report just adds to their challenges. The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford.”

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The strong dollar has jumped to a six-month high against Japan’s yen, touching ¥158.8 to the $.

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US government debt prices are also falling, pushing up the yield (or interest rate) on America’s debt.

The 10-year Treasury yield is up almost 10 basis points at 4.78%, while 30-year Treasury yields are 7bps higher.

⚖️*EUROPEAN BONDS FALL WITH TREASURIES AFTER US PAYROLLS

🔻*GOLD PARES GAINS AFTER STRONG US DECEMBER JOBS DATA

⚖️🇺🇸*US 2- TO 7-YEAR YIELDS RISE AT LEAST 10 BASIS POINTS ON DAY

💱*EM CURRENCIES SLIDE AFTER US JOBS REPORT; BRL, ZAR LEAD LOSSES

💷🔻*GBP/UDS FALLS 0.7% TO…

— Cable FX Macro (@cablefxmacro) January 10, 2025

This rather confirms what Sir John Gieve told the Today Programme this morning, that UK borrowing costs are moving in sync with the US.

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UK bond yields jump after US jobs report

The UK bond market crisis is bursting back into life too.

UK bond yields have jumped as investors calculate that the strong US jobs report reduces the chances of interest rates cuts in America, and quite possibly the UK too.

The yield on 30-year UK gilts has gained another 7 basis points (0.07 percentage points) today to 5.437%, towards the 26-year high seen on Thursday.

Ten-year gilt prices are also weakening, driving up yields on those bonds by 8 basis points to 4.88%, near to the highest since 2008.

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Pound hits new 14-month low as US jobs report beats forecasts

Newsflash: the US economy added many more jobs than expected last month, a development that has hammered the pound.

Non-farm payrolls rose by 256,000 in December, the U.S. Bureau of Labor Statistics has reported today. That smashes forecasts of a 160,00 increase, and has pulled the US unemployment rate down to 4.1%, from 4.2%.

Employment trended up in health care, government, and social assistance, and retailers also added jobs in December, the BLS reports.

This indicates the US labor market is in a stronger position than expected – good news for Donald Trump as he prepares to be sworn in as US president later this month.

BUT it will make it harder for the US Federal Reserve to justify cuts to interest rates.

As a result, the dollar is rallying – and this has sent the pound plunging by a whole cent to $1.22, the lowest since November 2023.

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The rise in government yields (and the drop in Sterling) both pose a big problem for the UK government, says Professor Costas Milas, of the University of Liverpool’s Management School.

He tells us:

To the extent that these movements reflect a loss of confidence in the UK economy, Rachel Reeves needs to respond to reassure the markets. So far, she has remained silent which is not helpful.

To maintain a healthy “fiscal position”, she will either have to raise taxes or cut government spending. Both of these options, in light of rising yields, will harm UK growth further. If, on the other hand, Rachel Reeves does nothing, the “fiscal position” will deteriorate further and, consequently, credit rating agencies (such as Moody’s, S&P or Fitch)will be inclined to downgrade Britain’s credit rating. The latter decision will lead to even higher government yields.

There is, of course, another alternative: The Bank of England steps in in early February with a cut in Bank Rate by 50 basis points (rather than 25 basis points) and/or restarts Quantitative Easing. Both actions by the Bank of England will drive down government yields and provide a so much needed helping hand to the economy.

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Back in the City, shares are ending the week on a poor note.

The blue-chip FTSE 100 share index is in the red, down 0.4% or 35 points at 8284 points.

Insurance firms are among the fallers, with Beazley down 4% and Hiscox off 3%, amid worries about the cost of claims from the Los Angeles wildfires.

UK-focused companies are also lower today, with BT Group (-2.8%) and NatWest (-2.7%) among the fallers, along with supermarket chain Sainsbury’s (-3%) following its Christmas trading statement.

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Government confident the UK has enough gas to get through the winter

The Government has said it’s confident the UK has enough natural gas supplies to make it through the winter, following Centrica’s warning that storage levels are ‘concerningly low’ (see 11.55am).

A spokesman for Downing Street has said.

“We are confident we will have a sufficient gas supply and electricity capacity to meet demand this winter, due to our diverse and resilient energy system.

“We speak regularly with the national energy system operator to monitor our energy security, and ensure they have all tools at their disposal if needed to secure our supply.

“Our mission to deliver clean power by 2030 will replace our dependency on unstable fossil fuel markets with clean, homegrown power controlled in Britain, which is the best way to protect bill payers and boost our energy independence.”

Reports the UK has been on the verge of an energy blackout are “not true”, the spokesman added.

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Surge in UK borrowing costs to hit economy growth, Goldman Sachs warns

The sell-off in UK government debt this year is going to hurt economic growth, economists at Goldman Sachs have warned.

Goldman Sachs fears that the jump in gilt yields will hurt households who need to remortgage home loans, and deter businesses from borrowing to investing.

Analysts James Moberly and Sven Jari Stehn explains:

Gilts have sold off materially, with 10-year yields up 24bp to 4.81% since the start of the year and around 100bp since September, reaching the highest level since 2008.

We expect higher yields to act as an additional headwind to growth via household remortgaging and weaker investment, with the increase of the last few days worth around 0.1pp of additional growth drag this year.

Illustration: Goldman Sachs

Moberly and Stehn add that the rise in gilt yields reinforces their view that UK growth will disappoint in 2025.

They forecast UK growth of just 0.9% this year, which they say is “notably below consensus (1.4%), the Bank of England (1.5%) and the Office for Budget Responsibility (2%).”

A chart showing the impact of higher yields Photograph: Goldman Sachs

According to research by the property company Savills, about 690,000 homeowners who are on three-, four-, five-year or longer deals that are up for renewal in 2025 will face increases in their monthly payments. Of these, the vast majority, 575,000, are on five-year deals.

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Britain’s gas storage levels are ‘concerningly low’, Centrica says

Photograph: Clynt Garnham Products/Alamy

The UK’s winter gas storage levels have dropped to “concerningly low levels” following the ongoing cold snap, energy provider Centrica has warned.

Centrica has revealed that as of yesterday, the UK has less than a week of gas demand in store, as a spike in energy demand due to the freezing weather put pressure on gas reserves.

UK storage sites are 26% lower than last year’s inventory at the same time, Centrica reports, leaving them around half full.

Centrica, the owner of British Gas, says:

The UK’s gas storage is under pressure this winter as the UK battles both extreme cold and high gas prices. The ongoing colder-than-usual conditions in the UK combined with the end of Russian gas pipeline supplies through Ukraine on 31 December 2024 has meant that gas inventory levels across the UK are down.

But, the situation is echoed across Europe, where people are also shivering. On 7 January, European storage was at 69% capacity, down from 84% at the same time the previous year, Centrica reports.

Centrica is also arguing that the UK needs more long-duration energy storage, to help balane the system as it becomes increasingly reliant on renewables

Chris O’Shea, Group CEO at Centrica, says:

“Energy storage is what keeps the lights on and homes warm when the sun doesn’t shine and the wind doesn’t blow, so investing in our storage capacity makes perfect economic sense. We need to think of storage as a very valuable insurance policy.”

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The pound isn’t the only currency having a rough time against the resurgent US dollar.

The Swiss franc has dropped to its weakest level since the end of May, trading as low at 0.9138 per dollar this morning.

Data earlier this week showed a drop in Swiss inflation, to 0.6% in December, which could clear the way for the Swiss central bank to cut interest rates.

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Investors turn gloomy on UK assets

Although the markets for US assets are calmer today than earlier in the week, there’s a palpable nervousness in the City about the outlook for gilts and the pound.

Mark Dowding, BlueBay CIO at RBC BlueBay Asset Management, says his firm takes a negative view on UK assets:

Dowding explains:

Politically, the official growth forecast for 2025 (2%) is already looking ambitious and is likely to be re-rated lower in March, adding to spiralling deficit concerns.

Higher borrowing costs are feeding back into a deteriorating fiscal profile, and there is a growing sense that the Labour government will break its own fiscal rules and be forced to renege on its promise not to raise taxes further, given the high sensitivity around additional borrowing and cuts to public spending.

RBC BlueBay remains bearish on UK assets as the firm continues to envisage a fiscal and political downward spiral.

Deutsche Bank are recommending selling the pound “on a broad, trade-weighted basis,” explaining that sterling has lost recent sources of support.

Deutsche’s Shreyas Gopal says:

The current account deficit is likely no longer improving, and volatility-adjusted yield pickup appears at risk of worsening further.

Update: Deutsche also say:

“With the trade-weighted sterling index still sitting just over 2% off its post-Brexit highs, we think there’s further to go in the recent pound weakness.”

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The boss of Sainsbury’s has warned that the increase in national insurance contributions paid by companies will make it cautious about hiring new staff this year.

Sainsbury’s CEO Simon Roberts told reporters:

“We’ll have to look very carefully at all hiring decisions.”

Back in November, Sainsbury’s said the Nics increase announced in last year’s budget would cost it £140m per year, and might lead to price rises.

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The pound has recovered from its early morning swoon, and is now flat on the day at just over $1.23.

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Mortgage rates unchanged despite gilt turmoil

The jump in UK borrowing costs has not, yet, fed through to mortgage rates, it seems.

Data provider Moneyfacts has reported that the average rates for fixed-term mortgages are unchanged today.

They report:

The average 2-year fixed residential mortgage rate today is 5.47%. This is unchanged from the previous working day.

The average 5-year fixed residential mortgage rate today is 5.25%. This is unchanged from the previous working day.

This means the average two-year fixed rate is the same as on Monday, while five-year fixed rates are just 0.01 percentage point higher this week.

Fixed-rate mortgages are priced off the yields on government bonds, so if this week’s rises are sustained, lenders might have to raise rates….

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