Morning Update

Yesterday, a report published by the Institute for Fiscal Studies indicated that increased reliance on health services across the UK will mean significantly more people will work for the NHS. The research suggested that by 2036 one in 11 workers in England will work for the NHS with the country’s largest employer having around 2.3-2.4m staff members by this time. This is a sizable rise from the current 1.5m people employed by the NHS presently which presently equated to one in 17 of the country’s workforce.

The study also suggests that the 2.3-2.4m NHS England employees will mean that just under 50% of all public sectors workers will work for the organisation. The rise in staff will contribute to the overall rise in the cost of running the NHS, which is expected to be 2% of GDP higher than in 2021-22. With spending on NHS England rising by this figure in terms by 2036/37, the IFS noted that “to give a sense of scale, raising that sort of sum would require increasing the standard rate of VAT from 20% to around 27% by 2036–37 or increasing all income tax rates by around 6 percentage points. Other funding options would of course be available”.

On the topic of staff pay, the IFS stated that “increasing the size of the workforce so rapidly will likely require NHS wages to become more generous in real terms and – potentially – match or even exceed growth in wages in the rest of the economy. It will also likely require an increase in non-staffing inputs to healthcare (most obviously things such as drugs and equipment).”

With markets continuing to keep a close eye on the health of the US labour market in the run up to the FOMC’s next meeting on 20 September, yesterday’s ADP employment change came in softer-than-expected. Against expectations of a 195,000 print, yesterday’s data indicated that US private sector job creation slowed to 177,000 in August – a considerable slowdown from last month’s figure of 371,000.

Here, Nela Richardson – ADP’s Chief Economist – stated that “this month’s numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.” With the US labour market showing signs of slowing down, attention now tuns to US Nonfarm released tomorrow at 1330. Here, the general market consensus is expecting a print of 170,000 marking a slight slowdown from July’s 187,000 figure. The US unemployment rate is also projected to remain unchanged at 3.5%, while average earnings is forecast to come in at 4.4% on an annualised basis.

Oil prices continued to advance yesterday, as US crude inventories showed signs of retreating and investors weighed up the prospect of extended OPEC+ supply cuts. Regarding inventory levels, EIA data suggested that US stockpiles declined by 10.6m barrels last week, well above forecasts of a 3.3m barrel decline. This marked the lowest inventory level across the world’s largest economy since December, supporting oil prices as WTI crude futures rose above $81dpb.

Moreover, according to a Bloomberg survey of 25 traders and analysts in the oil space, Saudi Arabia is expected to extend a 1 million barrel-a-day supply cut into October. This comes as investors also consider the possibility of Russia also conducting further supply-side cuts. On the demand side, though markets remain cautious on assessing the health of the Chinese economy, recent data indicated that manufacturing activity contracted at a lower-than-expected rate throughout August as services expanded. Investors are also considering whether the Fed may have achieved their terminal rate, as money markets price in around an 87% chance that the Fed would hold rates at their meeting on 20th September. WTI crude futures have now advanced for five straight sessions marking the longest run of daily gains since March.