Following the release of the latest UK labour market statistics, from the ONS this morning, investment experts have been sharing their reaction to the data, telling us what they think it means for the UK economy and for the direction of UK interest rates in the coming months.
Richard Carter, head of fixed interest research at Quilter Cheviot said: “The latest UK labour market statistics mark the first of three all-important data points due out this week which the Bank of England is sure to be keeping a watchful eye on.
“The UK labour market, inflation and GDP data are expected to be somewhat of a mixed bag this week, and the unemployment figure has presented the first surprise. The labour market has been cooling in recent months and a further increase in the unemployment rate had been on the cards, but this morning’s data show it decreased to 4.2% in April to June, down from 4.4% in the three months to May. The number of payrolled employees also increased by 14,000 between May and June 2024 and rose 227,000 between June 2023 and June 2024. While this suggests some unexpected strength in the labour market, it is worth taking these figures with a pinch of salt as the ONS has given a clear warning that the volatility of its Labour Force Survey estimates may mean they do not paint an entirely accurate picture.
“Meanwhile, this morning’s wage growth print will be welcomed by the BoE. Annual growth in employees’ average regular earnings (excluding bonuses) fell to 5.4% in April to June 2024, while annual growth in total earnings (including bonuses) fell to 4.5%, marking the lowest wage increase seen for two years. Though wage growth is heading in the right direction as far as the BoE is concerned, for now it continues to outpace inflation and in real terms, regular earnings are currently rising 3.4% which could help buoy the economy alongside increased consumer confidence following the first rate cut.
“Another round of data is due ahead of the Bank’s next interest rate decision in September which could sway things, but for now, this modest fall in wage growth may provide some reassurance that inflation pressures are relatively well contained and may therefore allow the Bank of England to continue cutting rates in the coming months, though it will continue to closely watch the unemployment rate. Markets have been pricing in a more aggressive path of rate cuts in the US than the UK, and we will likely have a clearer picture of what the Bank of England’s next steps could be by the end of the week once we have a better idea of the current state of the economy.”
Luke Bartholomew, Deputy Chief Economist at abrdn, said: “Today’s UK labour market report represents something of mixed bag for policymakers. Wage growth continues to slow, which is what the Bank of England wants to see. Meanwhile, the surprise fall in the unemployment rate – which might normally be taken as good news – may instead cause concern that a re-tightening labour market could trigger a resurgence in pay growth. This in turn could make achieving the inflation target harder. But given the various methodological issues surrounding the unemployment data at the moment, policymakers may be inclined to play down the signal from the unemployment rate. The picture may look a little clearer after this week’s inflation and GDP data, but, for now, there is nothing in this report that is likely to cause investors to meaningfully reassess expectations of future rate cuts later this year.”
Derrick Dunne, CEO of YOU Asset Management, comments on this morning’s ONS employment and wage figures saying: “This morning’s labour market data – which shows the number of vacancies is continuing to fall, although still 11.0% higher than in January to March 2020, and the unemployment dipping below that of a year ago – points to a further, albeit still baby, step towards sustained suppression of inflation.
“However, the progress on inflation that gave the Monetary Policy Committee (MPC) the confidence to cut rates to 5% at the start of the month is by no means baked in. While today’s figures show things continuing to move in the right direction, the risks of higher inflation remain ever present.
“That being the case, the Bank of England is unlikely to deviate from its uber-cautious approach that has, it would argue, seen it successfully tame the inflationary beast. It will be minded not to cut too fast or by too much. The decision to cut in August was certainly not a starting gun for a run of cuts. The Bank’s hesitancy to-date has served it well enough – tomorrow’s inflation figures will show how well. And if Thursday’s GDP data point to further uptick in growth – proving the economy can tolerate high rates – then the Bank may well ask why cut again?”
