uk labour market report (may) - reaction
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Employment Stretches on New Record High, as Productivity Slips on The Quarter


- Real total pay growth was flat in May (as measured by CPIH)
- Real regular pay growth rose 0.4% (as measured by CPIH)
- Using CPI measure total pay was up 0.2% & regular pay negative (-0.1%)
- UK nationals working in UK rises by 417K to 28.73M from yr-ago
- Labour productivity fell 0.5% Q1 2018, but 1.0% higher than yr-ago


The number of people in work rose in 197K to a record high of 32.34M in the 3-months to March 2018, up from the 55K reported last month and ahead of the 125K expected. There were 1.42M people unemployed over the same period, 46K fewer than the previous 3-months and 116K fewer than a year-ago, said the Office for National Statistics (ONS). 


The ILO measure of unemployment held steady on the month at 4.2pct but was down from the 4.6pct rate seen a year-ago. 


Turning to wages and the latest ONS estimates show average weekly earnings (incl bonuses) rose by 2.6pct versus a year-ago, and by 2.9pct (excl bonuses), both in line with expectations. In nominal terms, adjusted for inflation (using the CPI measure) real wage growth remained negative at -0.1% (excl bonuses), but grew by 0.2% (incl bonuses) for total pay. 


The inactivity rate (the proportion of people aged from 16 to 64 years who were economically inactive) came in at 21.0pct, lower than the year-ago figure of 21.5pct and the lowest since comparable records began in 1971.


Commenting on today’s labour market figures, senior ONS statistician Matt Hughes said, “With employment up again in the 3-months to March, the rate has hit a new record, with unemployment remaining at its lowest rate since 1975. 

“The growth in employment is still being driven by UK nationals, with a slight drop over the past year in the number of foreign workers. It’s important to remember, though, that this isn’t a measure of migration. 

“Growth in total pay remains in line with inflation, meaning real earnings are flat on the year.”


Last week at the Quarterly Inflation Report, the Governor of the Bank of England, Mark Carney suggested that the monetary policy committee (MPC) would be more data dependent when considering a hike in the Base rate. Therefore, today’s release took on added significance.


Howard Archer Chief Economic Adviser to EY Item Club notes, “There is plenty for the Bank of England to take on board in the latest jobs data with probably more ammunition provided for the more hawkish members of the Monetary Policy Committee than the dovish ones.


“On balance, the combination of robust employment growth, falling unemployment and stronger underlying earnings growth - as well as a clear relapse in productivity in the first quarter - looks supportive to a Bank of England interest rate hike in August. However, much is likely to depend on whether the UK economy sees clear signs of marked improvement over coming months after GDP grew just 0.1pct quarter-on-quarter in the first quarter.”


The ONS, alongside jobs data today also published Labour Productivity data covering Q1 2018. Productivity fell 0.5pct in the first 3-months of the year, as a result of continued strength in employment growth combined with weaker output growth.


ONS deputy chief economist Richard Heys said, “Productivity can be volatile, and despite this quarterly fall the underlying picture is one of modest growth with productivity 1.0pct higher than a year ago.”


Market reaction to the UK figures saw Cable (GBP/USD) rise some 20 pips from 1.3520 to 1.3542 immediately following the data. Gilts looked a little preoccupied with the UK DMO syndication of long -end debt to really show any real concern.


The squeeze on household incomes seems to be at an end and this is still a major trigger point for the MPC. This dynamic should help consumption and therefore the overall health of the economy (put simplistically).


If the Bank’s MPC follows the script, it will wait for the August Inflation Report before making its move on rates. That’s still a way off and leaves lots of room for more than one change of heart.  


Harry Daniels – LiveSquawk News

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