Morning Markets – Strong wage growth and unreliable data weigh on potential June rate cut; Biden likely to receive inflation blow as polls favour Trump

by | May 14, 2024

The latest economic data released this morning has shown that UK unemployment jumped to 4.3% whilst wage growth remains stubbornly high at 6% – or 2.4% adjusted for inflation. As the Bank of England’s MPC looks at every detail of data, this will give them food for thought ahead of their next meeting in June.

Sharing her analysis of today’s jobs data, Lindsay James, investment strategist at Quilter Investors said:

“Wage data published this morning by the ONS has shown that annual growth in regular earnings, excluding bonuses, was 6% in the period from January to March, showing no change on the prior three-month period to February and coming in above the 5.9% expected. Similarly, the measure of total pay growth, which includes bonuses, came in at 5.7%, above expectations for a rise of 5.5%. Real pay growth accelerated to 2.4% in the month of March, the highest rate since July 2021 as pay growth has remained stubborn at around this level even as CPI has been falling.  This rate of growth has been enjoyed across the wider economy, led by finance and business services, and manufacturing, although construction is the one area that has seen pay sharply lag inflation, with annual growth rates of regular pay standing at just 2.6%.

“This will likely not come as a complete surprise to the Bank of England’s Monetary Policy Committee, who are well aware that wage growth is the one area of the inflationary backdrop that is refusing to submit to the general direction of travel. With the Labour Force Survey under increasing scrutiny, the MPC has already complained that fewer survey responses have served to make gaining insights into the true strength of the labour market more difficult. This data will reinforce their view that it remains one of the most important signals for inflation, which has already led to sharply diverging trends between CPI for services and for goods, and could dent the chances of the first cut coming as early as June.

“Coming a day ahead of US CPI data, which remains probably the most important signal in global equity markets, investors will be wary.  Whilst the market expects headline CPI to fall only to 3.4%, from 3.5% last month, recent surveys have signalled rising inflation expectations amongst consumers, as the recent pick-up in inflation feeds through to the consumer psyche, an effect which often become self-fulfilling. We are likely to hear more cautious messaging from the Federal Reserve as a result, in a blow to President Biden on a day when new polls have shown Donald Trump retains his lead in almost all the swing states.”

Danni Hewson, AJ Bell head of financial analysis, has also commented on the latest UK jobs figures:

“Andrew Bailey made it clear that ratesetters would be carefully considering the array of economic data barrelling our way between this month’s Bank of England decision and the next meeting in June.

“Today’s jobs figures do little to move the dial with the labour market continuing to cool but wage growth coming in hot. Once our nemesis inflation is taken into account average regular earnings jumped 2.4%, the highest in almost three years. Whilst that does mean a few very welcome extra pennies in our pockets, good news for workers is likely to be viewed as bad news by market watchers.

“Getting inflation down to 2% is only one part of the task the Bank of England is facing. The harder bit will be keeping it down as the impact of those huge energy shocks we felt last year finally wash through the system.

“Every extra penny we feel confident to spend has the potential to add a little bit more kindling to the smouldering inflation pyre and looking at rate cut expectation following the release of today’s figures, it’s a coin toss as to whether the temperature will reach just the right level by 20 June.

“What we can see is that the post-pandemic labour boom is well and truly over. Though vacancy numbers are still above pre-Covid levels, they are steadfastly ebbing away as positions are filled or businesses re-write their plans. And the conundrum of a stubbornly high economic inactivity rate remains.

“Long NHS waiting lists, caring responsibilities or a lack of desirable skills are vastly different problems requiring difficult solutions. Will an impending election help or hinder the work to find answers?”

Related articles

Ninety One | Macroscope: Time to buy gilts?

Ninety One | Macroscope: Time to buy gilts?

Strategist for Ninety One, Russell Silberston argues that with inflation about to hit target, the Bank of England soon to embark on an easing cycle and the economy cruising at stall speed, it’s about time that the so-called ‘Moron Premium’ was consigned to the history...

Trending stories

Join our mailing list

Subscribe to our mailing list to receive regular updates!

x