Unemployment rate holds steady, at 4.8%; claims fall sharply
UK labour market numbers today showed that employment had increased by 38,000 in the three months to December and the labour force increased by 31,000, leaving the number of unemployed down by about 7,000. The unemployment rate held steady, at 4.8 percent. The more timely claimant count figure fell by a surprisingly large amount, 42,000, in January. The December number was revised to a drop of 20,000, from the previous estimate of a fall of 10,000. However, the ONS encourages people to be cautious when looking at this month’s numbers, as there are currently problems surrounding the seasonal adjustment of the data. On the more disappointing side, average weekly earnings showed a y-o-y growth rate of 2.6 percent in January, down from 2.7 percent in December. That was lower than the consensus expectation of 2.7 percent.
Subdued wage growth and slowly increasing unemployment ahead
The claimant count increased during 2016 in tandem with the PMI employment index, but the monthly increases in the claimant count became smaller during H2. In December and now in January, the claimant count fell notably. Different survey measures for employment intentions improved toward the end of 2016, particularly for the manufacturing sector, indicating that employment should at least hold up into the new year. The trend in employment growth since last summer has been flat to slightly positive; today’s numbers improved the trend somewhat. Over the same period, labour force growth has been flat to negative. We expect unemployment to slowly creep upward ahead and reach 5 percent during the year. The expected increase in unemployment is slower than we anticipated a few months ago, as GDP growth has proved to be much more resilient than foreseen. The Bank of England (BoE) expects the unemployment rate to reach 5 percent in H2 2017 and stay there throughout 2018 before falling to 4.9 percent in 2019. We expect wage growth to remain subdued ahead and see inflation staying low enough for the BoE not to raise rates this year or next.