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UK CommentUK labour market numbers mixed

  1. Unemployment down to 4.0%, total pay down to 2.4% and regular pay down to 2.7% in June
  2. Unemployment pulled down by drop in labour force
  3. Trend in line with BoE expectations so far
Unemployment down to 4.0%, total pay down to 2.4% and regular pay down to 2.7%
UK labour market numbers came in slightly mixed. The unemployment rate in the three months to June fell to 4.0 percent from 4.2 percent in May. This was lower than both the Bank of England’s (BoE) expectation (4.1 percent) and the market consensus (4.2 percent). However, employment growth in June was weaker than expected, at +42k vs. 93k expected. So, the reason for the marked fall in unemployment in June was a sizeable drop of some 23k in the labour force. The more timely jobless claims increased by 6.2k in July after increasing 9.0k in June (revised from 7.8k). Total pay growth (average weekly earnings) eased to 2.4 percent in the three months to June from 2.5 percent in May. This was below the market consensus for an unchanged reading. Regular pay growth (average weekly earnings ex. bonus) was 2.7 percent in June, as expected, but May was revised up to 2.8 percent from 2.7 percent previously. Therefore, the Q2 average for regular pay growth was 2.7 percent, a little stronger than the BoE’s expectation of 2.6 percent. The BoE expects regular pay growth to average around 2 ¾ percent from Q3 2018 to Q1 2019.
Trend in line with BoE expectations so far
As mentioned, the drop in the unemployment rate in June was larger than the BoE expected. However, the central bank’s forecast implies that the unemployment rate will drop to 3.9 percent by November this year, so the trend should be more or less in line with the central bank’s expectation so far. Looking at labour market indicators, both jobless claims and also the PMI employment index suggest the drop in unemployment will not continue, but that we should see a rather sideways development in the unemployment rate in the near term. Wage growth peaked in Q1 and has since decelerated slightly. The BoE Agents’ survey indicates that underlying wage growth should hold up around current levels in the near term. Further ahead, we expect lingering Brexit uncertainty to lead to a weaker development in unemployment and wage growth than the BoE currently expects. We therefore believe the August hike was the last one from the BoE for the next two years.


 


 


 


Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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