United Kingdom: Sluggish labour data shapes BoE view – Deutsche Bank

Deutsche Bank’s Chief UK Economist Sanjay Raja assesses latest United Kingdom (UK) labour market data as signalling a still weak backdrop, with employment struggling and vacancies falling. Pay indicators show some correction, while productivity is rising as growth outpaces expectations with fewer employees. Raja argues this sluggish labour market will influence the Bank of England’s (BoE) Monetary Policy Committee by reinforcing that Bank Rate remains restrictive.

Weak jobs and moderating pay trends

"Today’s labour market data throws a small (and maybe temporary) wrench in our view that the labour market is bottoming out. Indeed, today’s data painted a picture of a rather sluggish labour market – despite some signs of optimism building in the survey data."

"First, the labour market is still struggling to grow. While the jobless rate stayed steady at 4.9% (as we expected), payroll data from HMRC showed a sizeable 26k fall in August (though we expect this to be eventually revised higher). The more reliable quarterly Workforce Jobs data also showed a fall in spring too – though at only -48k (with the number of employee jobs down “only” 10k in Q2)."

"Second, pay data looks like it may be correcting a little. We knew this would happen. AWE Private Regular Pay – the key indicator watched by the MPC – ticked up to 2.9% (3m/YoY) in July."

"While economic growth continues to outpace expectations, the staggering fact is that it’s happening with fewer employees. Productivity growth, by definition, is pushing higher. That said, there’s no evidence yet that the UK labour market is out of the woods just yet."

"For the MPC, this will matter. A still sluggish labour market will give the Bank some confidence that Bank Rate remains restrictive."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)