UK Labour Market Offers Both Doves And Hawks Something to Chew On

The UK employment report was mixed. Unemployment rated went down to 5.3% in September, and 177,000 jobs were added but with softer earnings as wage pressures moderated more than expected.

September’s unemployment rate is 0.1 percentage points lower than what was forecasted, in step with a six-month growth surge.

The current rate of 5.3% is just 0.2 percentage points above the Bank of England’s (BoE) estimate for the long-term equilibrium rate. Vacancies are down to 736,000 from 740,000; this number is on par with the highest ratio of vacancies to unemployment since February, 2008.

Generally, employment growth remains steady and robust in the UK. From the three months to September, the UK created 177,000 jobs and unemployment fell by 103,000. Participation fell by 8,000.

Underemployment is now at 15.2%, down from 15.8%. This underemployment figure is still above pre-crisis level, which was 9%, but it is in a downward trend.

However, weaker wage growth still persists. The average weekly earnings growth is at 3.0%, which was predicted, and the regular pay growth measure ticked down to 2.5%, which was a surprise.  Private sector regular pay growth ticked down to 2.8% from 3.2%.

Despite the weaker than expected earnings growth UniCredit reckon, “the weaker-than-expected earnings growth will prove very temporary; indeed, a range of measures confirm that the labour market is tightening and that will drive wage growth higher.

“Also, as the negative base effect from oil prices drops out at the end of the year, headline inflation will move materially higher and this will support nominal wage growth.”

In broad terms, this employment report should not have great implications for the BoE.

On both a nominal and real basis, wage growth remains fairly healthy and the unemployment rate is still on a stable and downward trend.

This is good news for the general UK consumer, especially when coupled with falling prices.

And by extension, it appears to be good news for the UK economy, which continues to be heavily reliant on the consumer, particularly with the upcoming holiday period.

Yet the BoE continues to resist, for now, raising interest rates, with markets pushing back expectations towards the back of 2016 / early 2017.