Easing labour market pressures hint at turning point in UK inflation battle

by | Apr 18, 2023

With the latest UK labour market statistics, Marcus Brookes, chief investment officer at Quilter Investors shared his views:

“This morning’s labour market statistics from the ONS show the UK jobs market remains tight for now, though a slight slowdown in the rate of pay pressures and the continued reduction in vacancies may signal a turning point in terms of persistently high inflation levels.

“Last month the Bank of England opted to hike interest rates by a further 25bps as it continued its fight against high inflation, pushing UK interest rates to 4.25%. Wage growth is a significant factor when it comes to the Bank’s next steps, and today the ONS reported growth in regular pay (excluding bonuses) was up 6.6% in December 2022 to February 2023 – only marginally higher than 6.5% reported in November 2022 to January 2023. The number of job vacancies fell once more, dipping by 47,000 on the quarter to 1,105,000. While it is worth nothing that wage growth is a lagging indicator, the Bank will likely see this slight slowdown as a positive, though it still may not be enough to put pause on a further interest rate hike at its MPC meeting in May.

“The Chancellor will no doubt be relieved that at least some of the numbers are beginning to tilt in his favour following the ‘back to work’ budget in March which focused on boosting the UK’s productivity – largely by tempting older workers back into employment with significant changes to pension savings allowances. The rate of economic inactivity decreased by a further 0.4 percentage points on the quarter to 21.1% in December to February 2023. However, this was largely driven by people aged 16-24, rather than the Chancellor’s over 50s target.

“Given this data only covers up to February 2023, time will tell whether the Chancellor’s changes announced during the spring budget to incentivise people back to work will provide the boost the UK’s lacking productivity levels so desperately need while also helping to ease inflation pressures.”

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