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UK CommentLabour market numbers mixed

  1. Employment growth disappointed - unemployment rate up to 4.4%
  2. Timelier claims and survey measures indicate further improvement
  3. Wage growth on the strong side of expectations – base effects will pull up in the short term
Employment growth disappointed - unemployment rate up to 4.4%
UK labour market numbers came in mixed. Employment growth in the three months to December was 88k, down from 102k the month before and much lower than the market expectation of 165k. At the same time, the labour force increased by 134k, resulting in an increase in the number of unemployed of 46k. The unemployment rate therefore inched up to 4.4 percent in December, from 4.3 percent in November. The consensus expectation was for an unchanged reading. The timelier change in claims fell by 7.2k in January, after increasing by 6.2k in December (revised from 8.6k). Average weekly earnings growth (total pay) was 2.5 percent y-o-y in December, unchanged from November and in line with the consensus. On the other hand, average weekly earnings growth excluding bonus (regular pay) increased to 2.5 percent in December from 2.3 percent in November (revised from 2.4 percent). The consensus expectation was 2.4 percent.
Timelier claims and survey measures indicate further improvement
Employment growth in December was weaker than expected, but these numbers tend to be volatile. The timelier claimant count as well as survey measures suggest that there is scope for the labour market to improve further in the short term. The BoE, in its February Inflation Report, expected that the unemployment rate would fall to 4.2 percent this year and further to 4.1 percent in 2019. The BoE’s estimate for the neutral unemployment rate was lowered to 4 ¼ percent, from 4 ½ percent previously. As the BoE expects the unemployment rate to fall below its neutral level this year, it also expects wage growth to pick up more meaningfully. The BoE expects regular pay growth to average 3.0 percent this year, increasing to 3.25 percent next year and 3.5 percent in 2020. The OBR, on the other hand, in its Autumn Budget update expected wage growth to temporarily increase to around 2.8 percent at the start of 2018 due to base effects, but then to fall back to around 2 percent again in H2 this year. The OBR expected wage growth of 2.5 percent next year. We do not have a specific forecast for wage growth, but expect Brexit related uncertainty to weigh on both wage growth and GDP this year and the next, but in the short term, it seems momentum is rather good.





Kari Due-Andresen

Chief Economist Norway

Norway and UK

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