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UK CommentUK labour market remarkably resilient despite Brexit

  1. Unemployment unchanged and wage growth slightly stronger in April
  2. Economic activity is easing, GDP and IP numbers worse than expected
  3. Brexit will eventually increase unemployment, we believe
Unemployment unchanged and wage growth slightly stronger in April
The UK labour market is holding up remarkably well despite Brexit. In the three months to April, the unemployment rate was unchanged at 3.8 percent, in line with market expectations. Average weekly earnings excluding bonus payments (regular pay) increased from 3.3 percent to 3.4 percent y-o-y, beating the consensus expectation of 3.2 percent. Average weekly earnings (total pay), on the other hand, decreased to 3.1 percent y-o-y from an upwardly adjusted 3.3 percent in March. All in all, the UK labour market is showing remarkable resilience despite Brexit worries taking their toll on economic activity.
Economic activity is easing, GDP and IP numbers worse than expected
Yesterday, monthly GDP numbers showed a larger-than-expected weakening in April, with a monthly drop in GDP of 0.4 percent. The market consensus was for a fall of 0.1 percent. Monthly GDP numbers are highly erratic, but survey data, such as PMI surveys, indicate GDP growth in the UK has deteriorated to rates close to zero. In addition, industrial production in April was much weaker than expected, falling by 2.7 percent, versus the market expectation of -1.0 percent. Total industrial production was dragged down by manufacturing, which fell a whopping 3.9 percent in April. Weakness was widespread within the manufacturing sector, but the significant decline was affected by a record fall within transport equipment due to planned shutdowns. For a few months, the manufacturing trend was kept artificially high by Brexit fears as companies stockpiled goods. However, as the Brexit date has been postponed, stockpiling has eased.
Brexit will eventually lead to increased unemployment
When it comes to the labour market, jobless claims and survey data indicate there could be some weakening in employment growth ahead, but then the labour market has been stronger than what has been indicated by these numbers over the past months. The Bank of England expects the unemployment rate to fluctuate around current levels for the coming two years, before decreasing further to 3.5 percent in 2022. We believe Brexit will continue to weigh on the UK economy and lead to unemployment rates eventually increasing next year.

 



 

 



Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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