Commenting on the latest UK Labour stats released earlier today, Hugh Gimber, global market strategist at J.P. Morgan Asset Management (JPAM) said:
“The Bank of England has been keen to stress that the remainder of this rate hiking cycle will be guided by the data. With this in mind, today’s labour market print is the first of four key economic releases ahead of the Bank’s next meeting in June, with another jobs report and two inflation prints ahead. While base effects will likely be to thank for a significant pull back in headline inflation next week, the recent signals from the labour market will have been the biggest source of concern for UK policymakers. Today’s data did at least show some tentative signs that the labour market may be starting to cool. The increase in the participation rate offers some hope that stronger wages are pulling young people back into the labour force, but this news will be tempered by the fact that the number of people now out of the labour force citing long-term sickness has reached a record high.
“Core services alone is currently contributing almost 3% points to UK inflation, and with limited prospects of a sharp increase in labour supply ahead, a much more substantial slowdown in labour demand will unfortunately be required if the inflation genie is to be returned to the bottle. Based on today’s evidence, UK investors should be preparing for further rate hikes ahead. If the Bank holds the line on being guided by the data, it looks increasingly likely that UK interest rates will reach 5% in 2023.”