Unemployment within the UK has fallen unexpectedly as corporations have increased their hiring, an indication of a robust economy and complicating the Bank of England’s move towards lower rates of interest.
The unemployment rate fell by 0.2 percentage points to 4.2% within the three months to June, the national statistics office said on Tuesday. Economists had expected a slight increase. The number of individuals employed rose by 97,000, significantly greater than the three,000 increase expected by forecasters. Wage growth slowed as expected.
While economists expressed doubts in regards to the reliability of the ONS Labour Force Survey, which is the premise for the unemployment data, investors interpreted the figures as a potentially inflationary sign of a robust economy. The unemployment rate is below the BOE’s forecast of 4.4% within the second quarter.
The pound rose 0.3 percent on Tuesday to trade above $1.28, making Britain the best-performing currency within the Group of 10 countries. This contrasts with the situation within the US, where weak jobs data has rattled markets in recent weeks. Figures released later this week are prone to show robust economic growth within the UK and the primary rise in inflation this 12 months.
“Investors may be asking questions about the weak US labor market and weak GDP growth in the euro area, but the UK appears to have none of these problems,” said Andrzej Szczepaniak, senior economist at Nomura. “The continued strong labor market data in the UK as well as the continued strong activity data support our internal assessment of a divergence between the Fed and the BOE.”
Employment rose across the board, with only a major decline amongst 16- to 17-year-olds within the quarter. The variety of employees on corporate payrolls rose by greater than 24,000 in July, double what economists had forecast, in keeping with real-time data from government records.
Separate data showed regular pay growth cooled to five.4% from 5.8% within the previous period. It was the weakest year-on-year pay increase since summer 2022. Total pay growth, which incorporates bonuses, fell sharply to 4.5% from 5.7%. This was largely as a consequence of a one-off bonus paid to National Health Service employees last 12 months.
BOE officials have focused on wage numbers of their seek for signs of inflation, but are also monitoring the flexibility of the broader labor market to push up wages and costs.
What Bloomberg Economics says…
“Private sector regular wage growth cooled again in June and is expected to fall below 5% in the upcoming data releases. The numbers suggest that the Bank of England should ease further this year, although the negative surprise in the unemployment rate indicates the risk that the labor market could pick up again if the economy continues to recover quickly. That will likely keep the BOE cautious – we think it will take the next step down in November.”
—Dan Hanson, senior economist. Click here to view REACT.
A slew of UK economic data this week will set the tone for the BOE ahead of its next monetary policy decision on September 19. Investors are betting the subsequent rate cut will are available November, but BOE officials have said they may tread cautiously while assessing the strength of domestic price pressures within the economy.
“The BOE’s concern will be the signal that the data sends about the underlying strength of the labor market,” said Stuart Cole, chief macroeconomist at Equiti Capital. “With tomorrow’s CPI data also expected to show inflation pressures picking up again, once everything is digested the market may conclude that another rate cut this year is not a done deal.”
Inflation figures released on Wednesday are prone to show the primary increase in price pressures this 12 months, and a significantly higher reading could undermine the case for further easing of the BOE’s monetary policy.
Some politicians have expressed ongoing concerns about strong wage growth. Catherine Mann – who was amongst 4 monetary policymakers who voted against changing rates of interest earlier this month – warned on Monday that an “upward trend” in wages and costs will “take a long time to unwind”.
“Looking more closely, the decline is more likely to be due to public sector wages than private sector wages, which are probably the BOE’s biggest concerns,” said Evelyne Gomez-Liechti, strategist at Mizuho. “Mann warned yesterday that it will ‘take a long time for the ‘uptrend’ in wages and prices to fade.’ It sounds like today’s data is unlikely to change their vote.”
There were some signs of loosening within the labor market in the roles data, because the variety of job openings fell to 884,000, the bottom level since mid-2021. The report also showed:
- Private sector regular wage growth – which the BOE closely monitors for signs of domestic pressures – cooled to five.2% from 5.6%, the bottom in greater than two years.
- The employment rate rose barely to 74.5%, the very best for the reason that first quarter.
- Due to strikes within the health sector, around 100,000 working days were lost as a consequence of industrial motion in June, in comparison with 51,000 in May.
- Household funds continued to be bolstered by wage increases that exceeded inflation. Real wage growth remained at 3.2%, the very best since 2021.
BOE officials are also cautious about interpreting the employment data after the ONS temporarily suspended its Labour Force Survey last 12 months. The ONS is within the technique of revising the survey, however the introduction of recent “transformed” figures has been postponed until next 12 months.
The central bank expects unemployment to fall to 4.8 percent in the approaching years, below the peaks seen throughout the pandemic and financial crisis.
“Despite the fall in the unemployment rate, we doubt that today’s release will have a major impact for the Bank of England,” said Ruth Gregory, deputy chief UK economist at Capital Economics. She said it was “difficult to say how much weight we should give to these numbers” due to doubts in regards to the accuracy of the info.
