Aurelia Butler

Dear reader,One of the pleasures of getting older is telling younger people how much easier they have it these days. Current strike action in the UK has provided me with an opportunity. Fellow journalists using the cliché “winter of discontent” present a target too tempting to resist.My message for bright-eyed young pundits is simple: you lot would not recognise a winter of discontent if it came up and bit you. I am old enough to remember the dark months of 1978-79, which were given their apt Shakespearean title by the tabloid Sun newspaper. Industrial action right now does not even come close.This is of relevance to the dwindling band of foreign direct investors in the UK. You have stuck it out thus far, through Brexit and the craziness of Liz Truss’s brief premiership. Train cancellations and industrial action by driving instructors represent a lower level of detriment to the investment case for the UK.The difference is reflected in the fact that no one is currently quoting the ten-year gilt yield as evidence of national ruin. Just for the record, it is a relatively sane 3.5 per cent.Most UK disputes involve public sector staff irked that real-terms pay cuts are set to deepen as a result of inflation, such as nurses. Rail workers, who tend to work for private companies employed on state contracts, have held regular stoppages. So have postal workers, whose privatised employer, London-listed International Distribution Services (aka Royal Mail) has public service obligations.Earlier this week the government, the ultimate paymaster for most of these groups, finally held talks with union leaders, something it had previously avoided.Back in 1978-79, strikes broke out all over the country and across the public and private sectors. Many of these were wildcat actions, which had not been prohibited firmly at the time. Rubbish went uncollected. The dead went unburied. Notably, Ford settled a dispute with workers by giving them a 17 per cent pay rise.“The current situation is nothing like the late seventies and early eighties in terms of the scale and range of people taking strike action,” says Alex Bryson, a labour market expert at University College London.My main memory of those times is of my own frivolous teenage disappointment at the lack of power cuts. We had those during miners’ strikes earlier in the decade. They were a lot of fun if you were a kid. Families told stories by candlelight instead of slumping in front of their TVs. For grown-ups, trying to keep the lights on was less enjoyable.This chart gives a sense of how many strikes British workers would need to participate in to rival the labour insurrection of 43 years ago.My aim is to introduce context, not to downplay problems NHS patients have getting treatment or disruption to individual businesses. White-collar employees are tooled up to work from home. But public transport strikes have delivered a real blow to some companies in the construction, hospitality and leisure sectors. Deutsche Bank calculates that up to 1.5mn working days were lost in the UK during December.Recent industrial action may have shaved 0.25 per cent off UK GDP, estimates Simon French, chief economist at brokerage Panmure Gordon. However, he acknowledges this is “small beer” compared with the impact of Brexit and runaway inflation.French points out that British output growth was higher in the strike-torn 1970s than the Bolly-swigging 1980s. The difference was that gains mostly flowed to labour in the first decade, but to capital in the second.Should international investors worry that the flow is reversing? Hardly. Membership of powerful labour unions has slumped in the UK, as elsewhere. That is implicit in the reduced premium paid to union members compared to non-unionised staff. This reflects the banning of the closed shop and the decline of manufacturing industries where collective bargaining had a real impact.International capital was wary of the UK in the seventies. These days, there seems little point in avoiding shares in UK businesses that are unionised for that reason alone. IDS agreed to a 3.7 per cent backdated pay rise before Christmas. Its main problem is its disappointing performance in parcel deliveries. UK train companies, typically units of larger groups such as Deutsche Bahn, are participants in a dysfunctional industry where economic incentives have been misaligned for years.Jagjit Chadha, director of the National Institute for Economic and Social Research, says that following the Truss administration’s disastrous mini-Budget, the international community sees the UK as “an example of how not to do things”. Unresolved public sector union disputes are a problem prime minister Rishi Sunak therefore needs to address carefully. He must find a way to soften the blow from inflation to household incomes without busting his already-strained budget. Lower energy costs should give him some extra money to play with.If industrial disputes persist and embroil more private sector employers then it will be time to worry. International investors would pay close attention. Which is more than I can expect from colleagues when I start sharing my wisdom concerning the three-day week, Red Robbo and the Grunwick dispute. Reminiscing is the prerogative of older people. Ignoring those reminiscences is the prerogative of younger people.Enjoy the rest of your week,Jonathan GuthrieHead of LexFurther reading: Sarah O’Connor on why pay negotiations are not a winner/loser situation.Raghuram Rajan on the tricky relationship between central banks and credibility.Department of shameless self-promotion: my own column on the risk of sanctions breakers using gold. More

Egypt allowed its pound to tumble to a new low on Wednesday as the country struggles with a foreign currency crisis that is choking businesses. The pound plunged as much as 14 per cent to trade at 32.2 to the US dollar.The slump in the currency comes after Egypt has agreed to move to a flexible currency regime as part of an IMF $3bn bailout intended to help relieve a nearly year-long foreign currency shortage. Since the central bank said it would move to a flexible currency rate in October, the pound has lost nearly 35 per cent as it has allowed it to devalue in phases. But analysts have warned that it has further to depreciate to ensure supply-demand equilibrium is restored to the foreign exchange market. The weakness of the pound is adding to the pain of millions of Egyptians as it fuels inflationary pressure, with urban inflation hitting 21.3 per cent in December, its highest level in years.It is estimated that 60 per cent of Egypt’s 100mn population lives below or just above the poverty line. The Arab state has been hit by the headwinds of Russia’s invasion of Ukraine, which drove energy and food prices higher. It also triggered capital flight from Egypt, with foreign investors pulling about $20bn out of local debt in February and March last year. The capital outflow triggered the foreign currency crisis and forced Cairo to borrow more than $13bn from Gulf states and seek assistance from the IMF for the fourth time since 2016. Egypt’s central bank jacked up interest rates last year in an attempt to attract foreign portfolio inflows and finance the country’s account deficit. However, those measures have not relieved the pressure on the currency. The $3bn IMF loan was agreed in October after months of talks, with the fund estimating that Egypt faces a $17bn financing gap over the next four years.Analysts and business leaders say the nation’s woes have been exacerbated by the role of the military in the economy, which has expanded since President Abdel Fattah al-Sisi, a former army chief, took power in a 2013 coup. As the military was put in charge of hundreds of infrastructure projects and extended its footprint across multiple sectors, it was blamed for crowding out the private sector and stymieing foreign direct investment needed to bring in sustainable sources of foreign currency. Analysts also complain that the state has been living beyond its means as Sisi has pushed ahead with an array of big infrastructure projects.Egypt is the IMF’s second-highest debtor after Argentina and has become increasingly dependent on support from oil-rich Gulf states, including Saudi Arabia, the United Arab Emirates and Qatar. The IMF said on Tuesday that Cairo had agreed structural reforms to reduce the role of state entities, including military-owned companies, in the economy. It said Egypt needed “a permanent shift to a flexible exchange rate regime to increase resilience against external shocks and to rebuild external buffers”.But the fund also warned that the “fiscal consolidation in the context of rising living costs could face political and social pushback”.“The durability of the shift to a flexible exchange rate remains to be proven and the [central bank] may face political and social pressure to reverse course,” the IMF said. “The proposed structural reforms will take time to implement and deliver the intended results, while reforms aimed at reducing the role of the state may face resistance from vested interests in the country.”The currency is approaching levels that are attractive to foreign investors, but interest rates on local debt will also need to rise to bring them back in force, according to Kevin Daly, an emerging markets fund manager at Abrdn. “I wouldn’t expect to see a big inflow of dollars into the market until you get an adjustment higher in rates,” he said. Short-term government debt yields are at roughly 20 per cent, but would need to rise closer to 30 per cent to “get people out of their seats”, Daly added. More

The workers driving the UK’s worst wave of strike action in decades are concentrated in occupations where pay has suffered the sharpest squeeze during a prolonged stagnation in wages. After months of angry exchanges between the government and unions, Prime Minister Rishi Sunak called this week for “an honest, grown-up conversation about what’s affordable for the country” on public sector pay, suggesting nurses and doctors, teachers and rail workers would need to moderate their demands. An analysis by the Financial Times of official data illustrates the real terms pay cuts many of these workers have already suffered in recent years — either as a result of government austerity policies or big structural shocks that have hit sectors such as rail, postal delivery and higher education. Train drivers, who are in the private sector, had competitive wage levels until relatively recently but their pay has also plateaued.These pay cuts have been compounded by public sector pay offers for 2022-23 that fall short of current private sector averages as Britain reels from a cost of living crisis. As a result, many workers look set to fall behind their peers in other rich economies.

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Some of the worst declines in pay affect relatively high earners. Doctors, whose junior ranks are voting on potential strike action, saw their average pay fall by almost 25 per cent in real terms between 2011 and 2020. University lecturers have seen average pay fall by 17.5 per cent as the higher education sector expanded and came under new funding pressures. Train drivers have historically earned well above the national average — and fared relatively well until recently, with their average pay rising 7.65 per cent between 2011 and 2022. But they have lost ground since the start of the pandemic, when lockdowns triggered a lasting slump in commuting, and they face additional threats to job security and working conditions, as rail employers seek to modernise and restructure the network. Lower paid public sector workers across the UK — especially those living in the capital and other areas with high living costs — are also under intense pressure. Nurses’ pay had fallen by 7.76 per cent in real terms between 2011 and 2020 — even before the latest cost of living shock — while secondary schoolteachers’ pay fell by 5.1 per cent in real terms over the same period.

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These figures are not an exact match for the pay awards given by any single employer in the public or private sector over the period. They represent the change in average pay for these occupations, including public and private sector employees, and will reflect changes in the structure of the workforce, as well as pay deals for existing staff.

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When it announced overall pay awards for workers in July, the government claimed levels for workers covered by the public sector pay review bodies — including teachers and most NHS staff — were similar to those in the private sector. But this claim now looks out of date. Official data shows average private sector pay growth, excluding bonuses, was running at 6.9 per cent in the three months to October, compared with just 2.7 per cent in the public sector. The Bank of England believes pay growth across the economy has stabilised at around 5 to 7 per cent. Wage settlements for existing employees, which the government says are a more appropriate comparator, are also more generous. Data gathered by the research group XpertHR shows an average pay award of 5 per cent in the three months to November. Meanwhile inflation is outstripping earnings for almost everyone, with consumer prices up by 10.7 per cent in the year to November. In comparison the flat rate pay rise of £1,400 for NHS workers in England, Wales and Northern Ireland equates to an average 4 per cent rise across the health service for 2022-23, tilted towards lower paid workers, with those in the bottom pay band gaining 9.3 per cent, while pay for senior nurses and midwives rose by 4 per cent. Ministers have been keen to cite the Royal College of Nursing’s demand for a pay rise 5 per cent above retail price inflation in England in order to portray unions’ position as unreasonable. But the RCN has made it clear this is an opening position for negotiations, and other unions representing NHS workers have been less specific, simply arguing that pay should rise in real terms. Some unions — although not the RCN — have accepted the Scottish government’s offer of a 7.5 per cent pay rise for NHS workers. Teaching unions have taken a similar position to health unions, and are seeking a “fully funded above-inflation pay rise” without giving a specific figure. Pay awards for teachers in England in 2022-23 are also weighted towards the lower paid, with newly qualified teachers outside London receiving an 8.9 per cent increase, while experienced staff in the top band receive 5 per cent. Prison staff were given a rise of at least 4 per cent, the armed forces received 3.75 per cent and senior civil servants were awarded 2 per cent. In the rail sector, Network Rail’s latest offer of a 9 per cent pay rise over two years, tied to big changes in working practices, has been accepted by two unions, the TSSA and Unite, but rejected by the RMT, whose members are driving strike action. The Rail Delivery Group, which represents train operating companies, has offered 8 per cent over two years — which has been rejected by the RMT and is being considered by the drivers’ union, Aslef after initial scepticism.

Rail unions refer to inflation as the benchmark for an acceptable pay deal, but in practice Aslef has agreed a string of deals with other train operators that exceed the RDG’s offer, but fall short of the inflation rate. Public sector unions point out that the government’s arguments for pay restraint amid high rates of inflation would be more convincing if they did not come on the back of a decade of real term cuts. “If we had had pay rising in real terms for a decade, and we got to this very difficult period, we’d be having a very different conversation,” said Paul Nowak, general secretary of the Trades Union Congress. “Our cost of living crisis, our wages crisis has not been a year in the making, it’s been 10, 11, 12 years in the making. That’s the reality.” More

Investing.com — Russia claims its first battlefield victory in Ukraine in months, as the West plots new sanctions against it. Apple is accelerating efforts to bring more components in-house. Stocks are set to edge higher. There’s a change of guard at the world’s biggest luxury group, LVMH, and a massive rise in U.S. oil inventories – but crude prices are still being driven by expectations of a Chinese recovery. And the crypto spat between the owners of Gemini and Genesis continues. Here’s what you need to know in financial markets on Wednesday, 11th January. 1. Russia claims breakthrough in Ukraine; West plans more sanctionsRussia claimed its first significant battlefield victory in months against Ukraine, saying its forces had taken control of the town of Soledar, a key point in the battle for the larger town of Bakhmut. Analysts said the development suggested that the news represented a moderate success for Russia’s strategy of grinding down Ukrainian forces in a battle of attrition.Kyiv denied losing control of the town.The news comes amid reports that the U.S., EU, and others are planning fresh sanctions against Russia, encouraged by the success of their price cap on Russian oil exports. Some estimate this has cut the Kremlin’s revenue stream by nearly $200 million a day since being introduced in December. Russia’s budget deficit, meanwhile, rose to 2.3% of GDP last year, according to the country’s finance ministry.2. Apple ramps up component substitution effortsNot content with replacing Broadcom’s (NASDAQ:AVGO) cellular modem chips in its iPhones, Apple (NASDAQ:AAPL) is also looking to start putting its own displays on its watches and, eventually, phones in its efforts to bring more of its assembly in house.According to Bloomberg, Apple intends to start putting in-house displays in its watches by the end of next year. It will use a new technology known as microLED as an upgrade from the current OLED standard, and give Apple more control over the design and capabilities of new products, according to Bloomberg’s sources.The move will reduce its dependence on suppliers such as LG Display (NYSE:LPL), whose ADRs fell over 2% in premarket on the news. Samsung (KS:005930), another core display supplier, eked out a modest gain in Seoul overnight.3. Stocks set to edge higher, treading water ahead of CPI; LVMH hits record high after shakeupU.S. stock markets are set to open modestly higher later, essentially treading water on a quiet day for earnings and economic data and waiting for the release of December’s consumer inflation data on Thursday.By 06:25 ET (11:25 GMT), Dow Jones futures were up 50 points or 0.2%, while S&P 500 futures were up 0.2%, and Nasdaq 100 futures were up 0.1%. The three main cash indices made gains of up to 1% on Tuesday.Stocks likely to be in focus later include Tesla (NASDAQ:TSLA), which is reportedly planning a $750M expansion of its Texas factory, and French luxury giant LVMH (EPA:LVMH), where controlling shareholder Bernard Arnault has installed Pietro Beccari as the new group chief executive and chairman, while his daughter Delphine Arnault will take at the helm of its Dior unit. The stock rose to an all-time high in early Paris trading.4. Silbert-Winklevoss, round 2The clash of the cryptocurrency titans revved up again, as the Winklevoss twins renewed their campaign to shake Digital Currency Group owner Barry Silbert down for money that they say he owes their clients.In a second open letter in two weeks, Cameron Winklevoss accused Silbert and his firms DCG and Genesis of defrauding 340,000 customers of their own Gemini Earn project, and called for his removal.Silbert responded by tweeting a letter to his own shareholders, lamenting that it was “challenging to have my integrity and good intentions questioned after spending a decade pouring everything into this company.” He acknowledged that DCG borrowed money from Genesis (which has now paused withdrawals due to liquidity constraints) in order to buy back DCG stock, but again rejected the bulk of Winklevoss’s claims, without mentioning Gemini once.5. Oil edges higher as Chinese rebound hopes trump U.S. inventory surgeCrude oil prices edged higher, shrugging off news of a massive rise in U.S. crude inventories last week to focus on the likelihood of a rebound in Chinese demand in the course of the year.The American Petroleum Institute had reported crude stocks rose over 14M barrels last week which, if confirmed by government data that are due at 10:30, would be the biggest weekly rise in nearly two years. Gasoline stocks also rose by 1.8M barrels.By 06:45 ET, U.S. crude futures were up 0.3% at $75.33 a barrel, while Brent futures were up 0.5% at $80.47 a barrel. More