MarketMinder

Headlines

Here we analyze a selection of third-party news articles—both those we agree and disagree with.

Please note: Though we make every effort to source articles from freely available sites, we will also regularly include articles on sites that have limited content for non-subscribers. Doing so is increasingly unavoidable, as more and more financial media is published behind paywalls.


Bank of England Under Pressure to Act on Inflation as Job Vacancies Soar to Record High

MarketMinder’s View: With job vacancies hitting 1 million in July and workers’ average earnings up 8.8% y/y in the rolling three-month period, there is a large chorus calling for the BoE to “take its foot off the accelerator” in order to avoid overheating the UK economy. While that pay figure is distorted by the UK’s summertime reopening, according to the article, “even the underlying rise in pay, which the ONS estimates at between 3.5pc and 4.9pc, is above the prevailing rate of around 3.5pc from 2019, indicating there could be growing pressures as the economy recovers.” We would like to take this opportunity to remind you, dear readers, that rising wages don’t cause inflation. Rather, inflation causes wages to rise. Nobel laureate Milton Friedman explained this in a seminal talk in the 1960s, when he showed that employers compete for workers by raising real (meaning, inflation-adjusted) wages, not nominal. In other words, employers factor in rising prices when setting salaries. Therefore, in our view, saying rising wages cause inflation is tantamount to saying rising inflation causes inflation, which is just a tad strange. In our view, the real consideration should be how steep the yield curve is and what that means for lending, which is where most new money comes from. The UK’s yield curve is still among the world’s flattest, and lending has cooled substantially in recent months. Seems to us like a rate hike that inverts the yield curve is an underappreciated risk to look out for, particularly with many apparently cheering that prospect. Not a reason to be down on UK stocks now, but a thing to watch for all the same.