US adds 311,000 jobs in February; UK economy returns to growth; bank shares tumble in market turmoil – business live

The UK economy is ‘going nowhere’, warns our economics editor Larry Elliott.

Following this morning’s GDP report, showing 0.3% growth in January – but no growth over the last year – he writes:

Jeremy Hunt took comfort from the fact the economy is showing more resilience than expected but rightly noted there was a “long way to go”. The good news for the chancellor is that the recession predicted by the Bank of England last November has yet to materialise, and even if it does come to pass is likely to be shorter and more shallow than expected last autumn. Higher growth means stronger tax receipts, lower borrowing and some extra wriggle room for Hunt in next week’s budget.

The bad news is that it is going to be some time before the economy benefits from lower global gas prices and falling inflation. GDP is not going to do much more than edge sideways again this year, if that, and even after beating forecasts in January it is still possible the economy will contract in the first quarter. The boost to private healthcare noted by the ONS is an indication of the effect on the economy of this winter’s widespread industrial action.

skip past newsletter promotion

Sterling is on track for its best day against the US dollar since the first week of January.

The news that the UK economy grew faster than expected in January has boosted the pound, while the mixed US jobs report weakened dollar.

Analysts say the 0.3% increase in GDP in January, ahead of forecasts of a 0.1% gain, has eased fears of a recession.

Matthew Ryan, head of market strategy at Ebury, explains:

“At this stage, we are far from convinced that a technical recession in 2023 is the foregone conclusion that many in the market have made out.

We think that the resilience of the UK economy will provide decent support for the pound in the coming months.”

The pound is currrently up 1.4% against the dollar at $1.2090, its biggest jump against the greenback since 6 January.

John Cronin, a financial analyst at the stockbroker Goodbody, believes the sell-off in UK bank stocks is unwarranted.

As covered this morning, shares in UK-listed banks fell amid the jitters created by Silicon Valley Bank’s emergency share sale to raise cash, after it incurred a $1.8bn on the sale of bonds.

Cronin points out that given that deposits at most big banks come from the retail market rather than tech startups, and that those same lenders would have to unwind the “enormous” cash balances held by the Bank of England before selling off any of their investment portfolios.

Furthermore, UK lenders also hedge risks linked to those portfolios.

Here’s the full story:

Silicon Valley Bank’s UK arm has issued a statement, pointing out that it is a “standalone independent banking institution” that is regulated and governed by the Prudential Regularory Authority in the UK.

It says:

Silicon Valley bank UK has been an independent subsidiary since August 2022 with a separate balance sheet to the SVB Financial Group and an independent UK Board of directors.

Silicon Valley Bank UK fully abides by the UK regulatory requirements as covered by the Financial Services Compensation Scheme and by the Financial Ombudsman Service. SVB UK, Ltd. is ring-fenced from the parent and its other subsidiaries.

Erin Platts, CEO and head of EMEA, says the bank has received support from its community of investors and start-up founders:

SVB has supported investors and innovators for 40 years and we have been so humbled with the consistent drum of support coming from our UK investor and founder community in last few days.

We appreciate that this is a concerning time for our clients so we are working tirelessly to support them and give more context”

Wall Street has opened slightly lower, with the main indices down around 0.2%.

Back in the troubled banking sector:

SVB Financial Group’s efforts to raise money have failed and the troubled bank was in talks to sell itself, CNBC reported on Friday, as a crisis at the tech-heavy lender rippled through global markets and hit banking stocks.

Shares of SVB Financial Group were halted on Friday after tumbling 66% in premarket trading.

SVB, which does business as Silicon Valley Bank, was not immediately available for comment, Reuters reports.

US job creation is still running well over the historic average, despite slowing to 311,000 new jobs in February.

And while that’s excellent news for workers, it may encourage the US Federal Reserve to keep tightening monetary policy, raising interest rates to cool inflation.

Nathaniel Casey, Investment Strategist at wealth manager Evelyn Partners, explains:

Despite reporting above consensus estimates, today’s jobs report saw NFPs revert closer to recent trends after January’s gain of 517k. The unemployment rate increased slightly to 3.6%.

With January’s payrolls figure seemingly an anomaly and wage growth continuing to slow, the Federal Reserve can feel slightly more optimistic that a tight labour market will not stoke inflation further.

However, the Fed still has more work to do with NFP’s running well above the post-Second World War monthly average of 123k.

Despite a slowdown in job creation signalling relatively bad news for the economic outlook, it will be seen as good news to markets, Casey adds:

During Fed chair Powell’s testimony to Congress earlier in the week, he noted that recent economic data – including employment – had partly reversed the softening seen during the end of 2022. He went on to note that if economic data was to continue to revert those softening trends, the Fed would be prepared to ‘increase the pace of rate hikes’ to regain price stability.

With the Jobs data now softening again and the unemployment rate ticking up, the market can feel slightly relieved that the likelihood of the Fed increasing the pace of hikes has fallen for the time being.

The labour force participation rate among ‘prime-age’ workers (ages 25 to 54) in the US has risen to its levels in early 2020.

That suggests that the workers who left the labor market during the pandemic have been returning – either finding jobs or looking for them.

Average hourly earnings growth has slowed to 0.2% month-on-month, from 0.3%, the US jobs report shows.

On an annual basis, average hourly pay growth was weaker than expected, at 4.6%.

The US unemployment rate has edged up to 3.6% for February, with the number of unemployed persons rising to 5.9 million, the Bureau of Labor Statistics reports.

There were notable job gains across US leisure and hospitality companies, retail trade, government, and health care.

But employment declined in the information sector, and in transportation and warehousing.

Newsflash: Job creation across the US slowed last month, but more jobs were created than expected.

The Non-Farm Payroll, a closely-watched measure of US employment, rose by 311,000 in February, rather stronger than the 205,000 which was expected.

That follows a (downwardly revised) 504,000 in January. January’s non-farm payroll increase had initially been estimated at 517,000 jobs last month.