UK Retail Sales, US Labour Market and Inflation Driven Disputes

Yesterday afternoon saw US Initial Jobless Claims rise to 245,000 surpassing expectations and acting as further evidence to suggest that the heat of the US labour market was easing. This follows the Fed’s Beige Book indicating that the US jobs market had “moderated somewhat”. Given that the US labour market has been a key driver of inflationary pressure in the economy the last two years over the easing of the labour market may continue to see inflation cool. According to Reuters “The combination of spring breaks, which temporarily left support staff at some school districts unemployed, and people who have exhausted their severance packages following a rush of layoffs in the technology sector and other areas of the economy sensitive to interest rates, could account for part of the rise in claims last week”. The highest rise in jobless claims came from California, New York, Massachusetts and Texas.

The Royal Navy is in a dispute with the UK’s second largest defence contractor Babcock as inflation has driven up the manufacturing costs of five new Type 31 frigates. The deal done in 2019 saw Babcock agreed manufacture the Type 31s at a fixed cost of £250m, though rising inflationary pressures on raw materials and labour have resulted in the project costing an extra £100m. The contractor is thus appealing to the MOD to cover the costs of the project with the group saying that they could not have foreseen rising cost pressures. According to Babcock, “Without recovery of the additional costs, the contract would be loss-making and our preliminary assessment, subject to finalisation and audit, is that a one-off provision of between £50m and £100m would be required to cover the duration of the contract.”

If no deal can be reached, it is likely that an arbitrator may be called in to judge the dispute and the case highlights yet another trial and tribulation in the UK’s inflation story.