U.K. Jobless Rate at 42-Year Low Amid Strong Labor DemandBy
Unemployment at 4.3% is below BOE ‘equilibrium rate’ of 4.5%
Wages muted but officials signal there is no time to wait
The U.K. jobless rate held at a 42-year low in the three months through August as Britain enjoyed near-record employment, according to figures published Wednesday.
The latest snapshot of the labor market from the Office for National Statistics may help to explain why the Bank of England appears to be edging toward its first interest-rate increase for a decade.
In evidence to lawmakers on Tuesday, BOE Governor Mark Carney made clear that the erosion of slack in the economy is the primary concern as policy makers prepare for their Nov. 2 meeting. He said a rate increase would probably be needed in the “coming months,” repeating the recent signal from the bank.
Wage growth was little changed at just over 2 percent -- well behind the rate of inflation -- but officials are signaling they are no longer prepared to wait for a pickup before tightening policy.
Still, not everyone on the Monetary Policy Committee is on board with that idea. Dave Ramsden said Tuesday that the lack of wage growth means he sees little sign of second-round effects from higher inflation, and that domestic price pressures remain subdued.
Responding to the labor-market data, Elizabeth Martins at HSBC Holdings Plc said the BOE is “still on” for a November rate hike, though it may not be a unanimous vote.
The jobless rate stood at 4.3 percent in the latest period, staying below the BOE’s 4.5 percent “equilibrium” rate below which inflationary pressures start to build. The number of people looking for work fell 52,000 to 1.44 million, the lowest since 2005.
Employment rose 94,000 from May to 32.1 million. At 75.1 percent, the employment rate is just below the record 75.3 percent recorded between May and July. The number of vacancies stood at close to a record high.
The pound briefly jumped after the data before reversing its gains. It was at $1.3174 as of 12:20 p.m. London time, down 0.1 percent on the day.
But economists detected some signs of weakness in the data. The rise in employment was half that seen in the period through July, and much of it came from self-employment, which tends to be lower paid and less secure than salaried work. There were also increases in long-term unemployment and the number of part-time workers unable to find a full-time job.
“While this is unlikely to deter the MPC from raising the bank rate by 25 basis points on 2 November, it strengthens our view that beyond November the MPC will remain on hold until at least end-2018,” said Daniel Vernazza, an economist at UniCredit in London.
The question is whether uncertainty over Brexit will now start to push up unemployment. The risks were underscored on Wednesday when supermarket chain J Sainsbury Plc announced it is cutting as many as 2,000 jobs.
With the labor market tight and Brexit curbing immigration, boosting growth without generating inflation may require a significant improvement in productivity, something considered unlikely given the dismal performance of recent years and the dampening effect leaving the European Union is having on investment.
The pressure on living standards continues, with regular pay growth falling in real term for a sixth month in August. For some, that may be a reason to hold off raising rates.
“The gap between CPI and wage growth is likely to stay fairly wide for some time to come,” said James Smith, an economist at ING. “Whilst we expect a November hike from the Bank of England -- the committee is keen to get out of emergency mode -- all of this suggests that the amount of subsequent tightening from the bank will be limited.”
Some improvement may nevertheless be on the horizon. Recent surveys show a pickup in wages and inflation is expected to peak close to its current rate of 3 percent before subsiding.
— With assistance by Jill Ward