The larger-than-expected rise in employment in October suggests the labour market has stabilised, so the Monetary Policy Committee will probably hold off cutting interest rates at Thursday’s meeting. But at the same time pay growth softened, so there is still a chance of a rate cut early next year.
Stabilisation in employment may keep the MPC away from rate cuts
- The larger-than-expected rise in employment in October suggests the labour market has stabilised, so the Monetary Policy Committee will probably hold off cutting interest rates at Thursday’s meeting. But at the same time pay growth softened, so there is still a chance of a rate cut early next year.
- Employment rose by 24,000 in the three months to October, which was much better than expected (consensus -14,000, CE +15,000) and the first rise since July. (See Chart 1.) What’s more, the increase was driven by a 66,000 rise in full-time work, offset by a 41,000 fall in part-time work. The sector breakdown for September (the figures are released on a quarterly basis) showed that employment growth had remained solid in the services sector, but that the number of jobs in the construction and retail sectors fell.
- The rise in employment was enough to keep annual employment growth at 1.0% and caused the unemployment rate to hold steady at 3.8% (as we predicted) rather than rising to 3.9% as the consensus suspected. (See Table 1.)
- The pay figures, on the other hand, were soft. Headline (three-month average) annual pay growth including bonuses eased from 3.7% in September to 3.2%, its slowest since September 2018. Admittedly, most of this decline was due to lower bonuses than a year earlier. But while headline pay growth excluding bonuses held up better, only easing from 3.6% to 3.5%, annual growth rate (i.e. not a three-month average) showed pay growth falling from 3.6% in September to 3.2% in October – its slowest pace since March.
- While today’s release was better than expected, as the labour market lags activity it was probably supported by the 0.3% q/q rise in GDP in Q3. But GDP growth appears to have stagnated in the fourth quarter, and surveys of hiring point to employment growth slowing decisively ahead. With Prime Minister Johnson determined not to extend the transition period, Brexit uncertainty won’t disappear altogether. The upshot is that there is larger chance of a rate cut early next year than most other forecasters think.
Chart 1: Employment
Table 1: Labour Market Data
Average Weekly Earnings
(3m av. %y/y)
Andrew Wishart, UK Economist, +44 20 7808 4062, firstname.lastname@example.org