LONDON BRIEFING: BoE dilemma as basic UK pay falls 2.2% in real terms

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Average pay in the UK is failing to keep up with rampant inflation, though the country's jobless rate remains at nearly a 50-year low, posing a conundrum for the Bank of England when it meets this week.

Data from the Office for National Statistics on Tuesday showed the UK unemployment rate unexpectedly rose in April.

The jobless rate rose to 3.8% in the three months to April, up from 3.7% in March and confounding market expectations, according to FXStreet, for an improvement to 3.6%.

At the same time, average earnings excluding bonuses rose 4.2% on an annual basis, in line with the reading for March and ahead of FXStreet-cited consensus of 4.0%. Including bonuses, wages grew 6.8%, below consensus of 7.6% and softening from 7.0% in March.

After accounting for soaring inflation, average pay including bonuses rose 0.4%, but when stripping bonuses out, pay fell 2.2% in real terms.

The ONS's Sam Beckett said the figures continue to show a ‘mixed picture’.

‘Unemployment is close to a fifty-year low point, and there was a record low number of redundancies. Job vacancies are still slowly rising, too,’ the ONS head of Economic Statistics said.

However, she added: ‘The high level of bonuses continues to cushion the effects of rising prices on total earnings for some workers, but if you exclude bonuses, pay in real terms is falling at its fastest rate in over a decade.’

Capital Economic commented: ‘The labour market didn’t appear to tighten further in April, which may push the Bank of England a little closer to raising interest rates by 25bps on Thursday rather than by 50bps. We’re sticking with our 50bps forecast, but it’s going to be mighty close.’

The BoE announces its latest policy decision at midday on Thursday.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: up 0.6% at 7,247.00

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Hang Seng: marginally higher, up 2.33 points at 21,069.91

Nikkei 225: closed down 1.3% at 26,629.86

S&P/ASX 200: closed down 3.6% at 6,686.00

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DJIA: closed down 876.05 points, or 2.8%, at 30,516.74

S&P 500: closed down 151.23 points, or 3.9%, at 3,749.63

Nasdaq Composite: closed down 530.80 points, or 4.7%, at 10,809.23

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EUR: up at $1.0441 ($1.0425)

GBP: up at $1.2165 ($1.2150)

USD: up at JP¥134.57 (JP¥133.90)

GOLD: up at $1,830.00 per ounce ($1,826.77)

OIL (Brent): higher at $122.92 a barrel ($119.33)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Tuesday's key economic events still to come

US Federal Open Market Committee two-day monetary policy meeting starts.

1100 CEST Germany ZEW indicator of economic sentiment

0830 EDT US producer price index

1630 EDT US API weekly statistical bulletin

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German inflation in May was confirmed at a post-unification high, data from Destatis showed, due to energy prices. The annual inflation rate was 7.9% for May, accelerating from 7.4% in April and in line with an earlier flash reading. Energy product prices jumped 38% on a year before, with heating oil, natural gas and motor fuel prices all surging. On a pan-EU harmonised basis, prices rose 8.7% on a year before and 1.1% month-on-month, both readings confirming the flash figures.

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Industrial production in Japan fell at a slightly sharper pace than expected in April. According to the Ministry of Economy, Trade & Industry, industrial output in Japan shrank by 4.9% yearly in April, following a 1.7% decline in March. Output for April had been expected to fall by 4.8% yearly, according to consensus cited by FXStreet. On a monthly basis, industrial production fell by 1.5% in April, having risen 0.3% in March from February. The monthly figure for April fell short of expectations of a smaller 1.3% decline.

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BROKER RATING CHANGES

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UBS cuts AstraZeneca to 'neutral' (buy) - price target 10,100 (10,500) pence

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RBC raises Close Brothers to outperform (sector perform) - price target 1,300 (1,250) pence

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Berenberg raises Wizz Air to 'buy' (hold) - price target 3300 (3500) pence

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HSBC raises Wizz Air to 'hold' (reduce)

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COMPANIES - FTSE 100

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Equipment rental firm Ashtead posted a jump in annual profit and was upbeat on its outlook despite inflation and supply chain issues. Revenue for the financial year to April 30 rose 19% to $7.96 billion from $6.64 billion the year before. Pretax profit jumped 35% to $1.67 billion from $1.24 billion. Adjusted pretax profit of $1.82 billion, up 38% on the year before, was in-line with analyst consensus of $1.81 billion. Ashtead proposed a final dividend of 67.5 cents, taking the total payout for the year to 80.0 cents, up 38% from 58.0 cents the year prior. ‘The new financial year has started well, and the business has clear momentum. We are well positioned to navigate the challenges and capitalise on the opportunities arising from the market circumstances we face, including supply chain constraints, inflation, labour scarcity and economic uncertainty, all factors which we believe to be drivers of ongoing structural change,’ said Ashtead.

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Entain has agreed to buy BetEnt, trading as BetCity, for up to €850 million. Amsterdam-headquartered BetCity is one of the Netherlands's leading online sports betting and gaming operators. ‘The newly regulated Netherlands online market is highly attractive and fast-growing across both sports betting and gaming,’ UK-based Entain said.

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ITV unveiled plans to take a majority stake just shy of 80% in Plimsoll Productions, a producer of natural history television programmes, for £103.5 million. ‘Plimsoll Productions' has a strong network with all of the global streamers, and this acquisition will strengthen and deepen ITV Studios' relationships with the streamers,’ the broadcaster said, noting Plimsoll has made shows for platforms such as Apple+, Netflix and Disney, as well as for ITV itself.

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COMPANIES - FTSE 250

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Housebuilders Crest Nicholson upgraded its full-year adjusted pretax profit guidance to a range of £135 million to £140 million - versus just £107.2 million the year before - after a strong interim performance. Half-year revenue increased 12% to £364.3 million from £324.5 million, reflecting the ‘underlying strength’ of the UK housing market, and adjusted pretax profit jumped to £52.5 million from £36.1 million. On a reported basis, Crest swung to a pretax loss of £52.5 million from a profit of £36.3 million a year before, due to a £10.5 million exceptional charge which includes its obligations under the UK government's Building Safety Pledge, which addresses the issue of dangerously flammable cladding.

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Crest peer Bellway said it has seen strong housing sales demand in the period stretching February 1 to June 5. It reported an average of 253 reservations per week, up 5.9% year-on-year, and added that positive pricing momentum continues to offset inflationary pressures. ‘Demand is strong, reservations are ahead of last year, and our order book remains substantial,’ said Chief Executive Jason Honeyman.

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Games Workshop said it expects full-year core revenue to be not less than £385 million, which would be up 9.1% on the £353 million generated the year before, and pretax profit is set to rise at least 2.6% to £155 million from £151 million.

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discoverIE posted annual profit growth and said it expects inflationary pressures to be ‘manageable’ in the year ahead. Revenue for the financial year ended March 31 rose 25% to £379.2 million from £302.8 million the year before, and pretax profit improved 27% to £17.1 million from £13.5 million. The maker of customised electronics, for sectors such as renewables and transport, declared a full-year dividend of 10.8p, up 6% on the year prior. ‘The new financial year has started well, with continued strong growth in organic sales, and the order book at record high levels. While supply chain headwinds and inflationary pressures remain, they are expected to be manageable,’ the company said.

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COMPANIES - SMALL CAP

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Go-Ahead Group late Monday said it has agreed to a takeover offer from Gerrard Investment Bidco, a subsidiary of a consortium consisting of Kinetic Holding Co and Globalvia Inversiones. Kinetic is a bus operator in Australia and New Zealand, while Globalvia is a Madrid-based transport infrastructure firm. Earlier Monday, Go-Ahead confirmed the receipt of two takeover proposals, one from the Kinetic consortium and another from Sydney-listed transport operator Kelsian Group. Under the agreement, the Kinetic-Globalvia consortium will acquire Go-Ahead for 1,500 pence per share, comprising 1,450p in cash, and a special dividend of 50 pence, in lieu of a final dividend for the financial year ending July 2. The offer values Go-Ahead at £647.7 million

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COMPANIES - GLOBAL

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Amazon.com plans to start flying some purchases to customers later this year, announcing drone delivery that will debut in a California town. Retail rival Walmart already offers drone delivery and in May announced it is dramatically ramping up the service, expanding to six US states by year-end with the potential to drop off one million packages annually. Amazon customers in the Northern California town of Lockeford will be able to sign up for free delivery by ‘Prime Air’ drones. ‘Air-eligible’ items ordered at the retailer's website will be packed into drones that will fly to the delivery addresses, deposit packages outside from safe heights, then fly away, according to Amazon. The drones can carry loads as heavy as five pounds in packages about the size of a large shoebox, an Amazon spokesperson told AFP. Items approved for drone delivery will include household products, beauty items, office supplies and tech gear, the spokesperson said.

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Tuesday's shareholder meetings

Andrews Sykes Group PLC - AGM

Coro Energy PLC - AGM

DCD Media PLC - GM re de-listing from AIM

Everyman Media Group PLC - AGM

Fair Oaks Income Ltd - AGM

Genflow Biosciences PLC - AGM

IP Group PLC - AGM

LoopUp Group PLC - AGM

Pod Point Group Holdings PLC - AGM

SDX Energy PLC - AGM

Somero Enterprises Inc - AGM

St Mark Homes PLC - AGM

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