The UK’s labour market is experiencing a mixed outlook as unemployment rises and wage growth slows.
- Unemployment has increased to 4.3%, up from 4.0%, revealing a shifting employment landscape.
- Wage growth excluding bonuses dropped to its lowest rate in two years, averaging 4.8%.
- Analysts predict that the Bank of England may hold interest rates steady due to persistent inflation concerns.
- Market reactions show caution, with the pound falling against the dollar and bond yields rising.
The latest data presents a complex picture for the UK labour market. Unemployment has risen to 4.3%, a sign of potential challenges ahead for job seekers. The economic inactivity rate, however, has decreased to 21.8%, the lowest in nearly a year, indicating more individuals are entering the workforce.
Wage growth, a critical factor influencing inflation and consumer purchasing power, averaged 4.8% excluding bonuses over the past quarter. This figure, although slightly higher than the expected 4.7%, is a decrease from the previous quarter’s 4.9%. Including bonuses, wages grew by 4.3%, an improvement from 3.9% in the prior period.
The slowing wage growth and rising unemployment are significant as they influence the Bank of England’s monetary policy. The Bank recently cut interest rates by 25 basis points to 4.75%, and some economists believe another cut in December is now less likely. This perception is influenced by the recent Budget’s 6.7% minimum wage rise, potentially adding to short-term inflation.
Bank of England Chief Economist Huw Pill noted that persistent ‘sticky’ wage growth complicates efforts to achieve a 2% inflation target. The Monetary Policy Committee has stressed that stabilising wages is essential for long-term inflation control. Market speculation suggests rates will hold steady next month, with any future cuts possibly delayed until February.
The pound’s value fell by 0.39% against the dollar to $1.281, reflecting market nervousness about ongoing inflation pressures. Additionally, the yield on 10-year UK government bonds rose to 4.445%, signalling investor concerns over the financial landscape. Liz McKeown from the ONS advised caution in interpreting the data, citing recent changes in data collection methods which may impact figures.
Analysts from Nomura have expressed scepticism about the wage figures, suggesting they might be ‘rogue’ data amidst an overall declining trend. If this trend continues, the Bank of England may consider interest rate adjustments in the future. For now, the outlook remains tentative, as the Bank continues to monitor labour and economic conditions closely.
The cautious economic environment suggests that the interplay of inflation and wage dynamics will significantly influence future interest rate decisions by the Bank of England.
