17 Feb 2016
UK labour data mixed, but focus on EU summit - ING
James Smith, Research Analyst at ING, suggests that the December’s UK labour data continued to paint a mixed picture.
Key Quotes
“On the one hand, the unemployment rate remained at 5.1%, which although we had expected it to move slightly lower, continues to signal that the labour market remains tight. More importantly though, wages pressures continue to remain subdued. Although the headline (ex. bonus) rate of wage growth came in above consensus at 2% YoY%, this is still well below pre-crisis averages (of about 4%). Indeed, since July last year, the trend has been virtually flat, with average weekly earnings (ex. bonus) only having grown by £2 (to £465).
The Bank of England has attributed this to temporary factors such as slower productivity growth and the fact that lower-paid roles are making up a “larger-than-usual share of net employment growth”. However, in our opinion, the underlying strength of the labour market means that it is only a matter of time before wages start to pick up more meaningfully again.
Despite all of the this, the focus is firmly on this week’s EU leaders’ summit which, according to comments from both UK and EU leaders, is likely to see a deal signed. If this is the case, the assumption is that a referendum date could be confirmed next week, most likely for the end of June.
In the run up to the referendum, the uncertainty surrounding the outcome could cause the economy to lose some momentum as firms hold off on hiring and investment. With wage pressures remaining fairly subdued (at least for now) and headline inflation likely to remain low in the near-term, the Bank of England has room to leave rates unchanged until the Brexit uncertainty subsides. However, if the UK votes to remain in the EU, we think there is a strong chance of a November rate hike given that consumer spending remains strong and a weaker sterling is likely to help push up inflation in the medium-term.”
Key Quotes
“On the one hand, the unemployment rate remained at 5.1%, which although we had expected it to move slightly lower, continues to signal that the labour market remains tight. More importantly though, wages pressures continue to remain subdued. Although the headline (ex. bonus) rate of wage growth came in above consensus at 2% YoY%, this is still well below pre-crisis averages (of about 4%). Indeed, since July last year, the trend has been virtually flat, with average weekly earnings (ex. bonus) only having grown by £2 (to £465).
The Bank of England has attributed this to temporary factors such as slower productivity growth and the fact that lower-paid roles are making up a “larger-than-usual share of net employment growth”. However, in our opinion, the underlying strength of the labour market means that it is only a matter of time before wages start to pick up more meaningfully again.
Despite all of the this, the focus is firmly on this week’s EU leaders’ summit which, according to comments from both UK and EU leaders, is likely to see a deal signed. If this is the case, the assumption is that a referendum date could be confirmed next week, most likely for the end of June.
In the run up to the referendum, the uncertainty surrounding the outcome could cause the economy to lose some momentum as firms hold off on hiring and investment. With wage pressures remaining fairly subdued (at least for now) and headline inflation likely to remain low in the near-term, the Bank of England has room to leave rates unchanged until the Brexit uncertainty subsides. However, if the UK votes to remain in the EU, we think there is a strong chance of a November rate hike given that consumer spending remains strong and a weaker sterling is likely to help push up inflation in the medium-term.”