New US unemployment claims hit six-month high

This is an audio transcript of the FT News Briefing podcast episode: New US unemployment claims hit six-month high

Marc Filippino
Good morning from the Financial Times. Today is Friday, August 5th, and this is your FT News Briefing.

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Marc Filippino
US unemployment claims have hit a six-month high. The UK central bank says inflation has taken a huge toll on living standards. And you gotta go back to the 1960s to see anything like it. Plus, Europe’s central bank recently dragged interest rates out of negative territory for the first time since 2014. We’ll take a look at how lenders are dealing with the new environment. I’m Marc Filippino and here’s the news you need to start your day.

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Marc Filippino
Last week, new unemployment claims in the US reached their highest level in more than six months. These numbers that came out yesterday signal that companies are firing more people. Significant lay-offs at technology, retail and crypto businesses have added fuel to the fire. Economists told the FT these new unemployment numbers are a sign that the labour market is cooling off, but they don’t anticipate a big jump in unemployment since there are still more job openings than there are workers to fill them.

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Marc Filippino
The Bank of England said yesterday that Britain is facing a protracted recession and the country is facing the worst squeeze on living standards in more than 60 years. This largely comes down to inflation. It’s high, and the BoE says that it could reach 13 per cent this year. And so the Bank of England raised interest rates by half a percentage point on Thursday. To talk more about the bank’s move is the FT’s markets editor, Katie Martin. She joins me pretty much every Friday. Hey, Katie.

Katie Martin
Hey, how you doing?

Marc Filippino
So, Katie, that was a lot. The Bank of England said a lot yesterday, in addition to an interest rate hike. What did markets do in response to all this?

Katie Martin
Yes. So normally what you would expect if you have a, not unanimous, but an 8-1 vote at the Bank of England in favour of raising interest rates, by that sort of degree, you would expect to see sterling rising. Right? This is kind of, this is what currencies like. They like it when central banks raise interest rates. Not this time.

Marc Filippino
Why?

Katie Martin
Part, well partly because they’ve done a little bit of buttering the market up for this. We kind of thought that it might be coming. They dropped some hints that they might do half a percentage point, not the usual increment of a quarter of a percentage point. But also this outlook is just horrendous and it’s very difficult to build a case for putting money to work in the UK with this sort of economic nightmare coming down the track, for want of a better word. They’re talking about a recession from the fourth quarter of this year and they’re expecting it to last for five quarters.

Marc Filippino
Oh, wow.

Katie Martin
Yeah. Growth is going to be very weak. Unemployment is going to sail higher and incomes are just going to be crushed in real terms. They understand that this is incredibly difficult for people and that comes in a very particular political environment that we’ve got now. But also, yet it’s just their way of saying, look, you know, brace yourself, this is really gonna hurt.

Marc Filippino
Yeah. And the political angle is extremely relevant. We’re talking about a prime minister race between Liz Truss, the UK’s foreign secretary, and Rishi Sunak, the former chancellor of the exchequer. How does politics play into all this?

Katie Martin
So the, both of the candidates are talking to their base, they’re talking to the British population. And Liz Truss, who is far and away the leading candidate at the moment to get the job of leader of the Conservative party — and therefore, prime minister — is talking about maybe changing the mandate of the Bank of England. Now, we don’t know exactly what that might mean, but we do know that the mandate hasn’t been changed since 1997, when the Labour party got into power and handed independence to the Bank of England. So the suspicion is, you know, does this mean that some of the independence will be taken away? Might there be more political interference in what the central bank does? Would that be helpful or unhelpful in terms of actually succeeding in getting inflation down? Because generally speaking, politicians don’t like to see interest rates get too high because it pushes up people’s mortgage payments and it can have an adverse effect on some parts of the population, but not all. And might there be some pressure to keep interest rates lower? I don’t know. I, you know, I’m thinking aloud. We don’t know exactly what this might mean yet, but it does come at a very awkward time.

Marc Filippino
Right, because of, because of the unpredictability, because we don’t know what this policy is. And we’ve not, we’re just kind of getting a hang of what the BoE’s monetary policy looks like in this state.

Katie Martin
Yeah. And we’ve got enough to deal with if inflation really is going to 13 per cent.

Marc Filippino
Yeah. Yeah. Hang on to your hats, folks. Katie Martin is the FT’s markets editor. Thank you, Katie.

Katie Martin
Take it easy.

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Marc Filippino
The Bank of England’s rate hike comes on the heels of similarly aggressive moves by the US Federal Reserve and the European Central Bank. European interest rates came out of negative territory last week for the first time in eight years. The FT’s banking editor Stephen Morris says that’s changing the game for European lenders.

Stephen Morris
It’s a lot easier for banks to make money and it’s actually been quite stark what’s happened in the second quarter of this year. Almost every European bank has beat its earnings forecasts for the first time, at least I can remember, really driven by this higher rate environment. And when I wrote about it, it’s kind of interesting to see how this will play out. Because whilst banks are getting this big first in a decade windfall from higher interest rates, it’s coming in a looming recession, a cost of living crisis, and a potential surge in loan defaults from kind of stressed consumers and small businesses and large corporates, you know, borrowing less and spending less money as they attempt to make it through a recession. So it kind of remains to be seen where this balance will lie between a surge in earnings from higher interest rates and a potential surge in defaults and bad loan losses on their balance sheets from the threat of recession and the cost of living crisis.

Marc Filippino
So, Stephen, does this higher rate environment take pressure off other parts of banks that are struggling because of the recessionary environment? Like, like mergers and acquisitions or IPOs, things that banks had been leaning on for revenue in the past two years during the pandemic that now aren’t doing so hot.

Stephen Morris
Yeah, well, last year was, you know, a very good year for investment banking. And by that I mean the advisory and M&A and capital markets teams of banks. You know, there was this Spac boom, special purpose acquisition vehicles, you know, which resulted in a lot of IPOs, which is now completely collapsed. And all the earnings, as you say, have disappeared. But for the first time, I think, you know, in years, sort of retail consumer and sort of small commercial parts of these banks are now seen as an asset, no longer as a liability. They can actually start generating income for banks. And that really is as, you know, some of the executives and analysts I’ve been talking to have told me, that really is a game changer for them.

Marc Filippino
Stephen Morris is the FT’s banking editor.

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Marc Filippino
Before we go, just a note that the folks over at FT Weekend are doing something special for the next few weeks: a food and drink mini-series. Over four episodes, FT Weekend host Lilah Raptopoulos will talk to experts on wine trends and cooking philosophy. We’ll hear from big names like cookbook writer Andy Baraghani and chef Ayesha Nurdjaja.

Lilah Raptopoulos
What is a secret in cooking that makes everything taste better?

Ayesha Nurdjaja
To do it while you’re in a good mood.

Lilah Raptopoulos
(Laughter)

Ayesha Nurdjaja
And to do it with an open heart.

Lilah Raptopoulos
Yeah.

Ayesha Nurdjaja
Because angry food tastes angry.

Marc Filippino
You can only hear this bonus series by heading over to the FT Weekend feed. So go search FT Weekend wherever you get your podcasts and subscribe. The first two episodes are already there and waiting for you.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Michael Lello, David da Silva, Peter Barber, Joanna Kao and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.