Labour Market (Sep.) - Capital Economics
UK Economics

Labour Market (Sep.)

UK Data Response
Written by Andrew Wishart

After GDP growth disappointed expectations yesterday, the smaller than expected fall in employment in the three months to September was something of a relief. At the margin, the figures reduce the immediate need for the Monetary Policy Committee (MPC) to cut interest rates and might give it the luxury of waiting until it is clearer how Brexit will pan out before making its next move.

Resilient in the face of weak GDP growth

  • After GDP growth disappointed expectations yesterday, the smaller than expected fall in employment in the three months to September was something of a relief. At the margin, the figures reduce the immediate need for the Monetary Policy Committee (MPC) to cut interest rates and might give it the luxury of waiting until it is clearer how Brexit will pan out before making its next move.
  • While the 58,000 fall in employment in the three months to September compares unfavourably with the 114,000 rise in the three months to June, it was much smaller than the consensus forecast of a 102,000 decline. What’s more, the annual rate of employment growth ticked up from 0.9% in August to 1.0%. (See Table 1.)
  • The fall in employment reflects a reduction in demand for workers on the “periphery” of the workforce. It was wholly driven by a 164,000 fall in part-time workers as full-time employment rose by 106,000. And broken down by age, the decline in employment was driven by those aged under 25 and over 64. This suggests that firms are not as desperate to hire as before.
  • Admittedly, the unemployment rate fell from 3.9% to 3.8%, its lowest level since 1984. But that was partly due to a 81,000 fall in the labour force, suggesting the softening of the labour market has prompted some people to leave the labour force.
  • The fall in pay growth also suggests firms are a bit less desperate to attract more workers. Headline average weekly earnings excluding bonuses fell from 3.8% in August to 3.6%. And the 3m/3m annualised rate eased sharply from 4.5% to 2.9%. (See Chart 1.)
  • Overall, the figures appear to illustrate that demand for labour is easing. But the lowest unemployment rate in 45 years means there is no cause for alarm. Our forecast is that the MPC would cut interest rates by May next year if Brexit uncertainty stays high and the labour market continues to soften. But the need for lower interest rates would be averted if there is a Brexit deal that causes the uncertainty to lift.

Chart 1: Average Weekly Earnings Excluding Bonuses

Sources: Refinitiv, Capital Economics

Table 1: Labour Market Data

Employment

ILO Unemployment

Average Weekly Earnings

Total

Change

% y/y

Total

Rate

Level

% y/y

Headline

Ex bonus

(000s)

(3m/3m, 000s)

(000s)

(%)

(£)

(3m av. %y/y)

(headline)

Jun.

32811

114

1.3

1329

3.9

539

3.9

3.8

3.9

Jul.

32777

31

1.1

1294

3.8

540

3.9

3.9

3.9

Aug.

32811

114

0.9

1329

3.9

540

3.4

3.7

3.8

Sep.

32753

-58

1.0

1306

3.8

542

3.6

3.6

3.6

Source: Refinitiv


Andrew Wishart, UK Economist, +44 20 7808 4062, andrew.wishart@capitaleconomics.com