BOE's Carney Nudged Step Closer to Rate Hike by Jobs Numbers
(Bloomberg) -- U.K. employment rose to a record high in the three months through May and wage pressures showed few signs of abating, keeping the Bank of England on course for an interest-rate increase next month.
The number of people in work rose by 137,000, more than forecast, taking the employment rate to 75.7 percent, the highest since records began in 1971. While headline measures of wage growth eased modestly, an underlying gauge climbed to the highest since January.
The pound rose following the data, which point to continued strength in the labor market and reinforce expectations for a rate hike in August. Money markets are pricing in an 80 percent chance of tightening, while a majority of economists in the latest Bloomberg survey also predict a move.
The report from the Office for National Statistics on Tuesday also showed that unemployment held at a 43-year low of 4.2 percent. Earnings growth excluding bonuses slowed to 2.7 percent, as forecast, but that’s still well ahead of year earlier levels. On a three-month annualized basis, private-sector wage growth jumped to a four-month high of 2.8 percent.
BOE Governor Mark Carney and fellow policy makers have cited strength in the labor market and limited spare capacity as reasons to raise rates again, though they’ve not said exactly when they’ll do that. Three of nine officials voted to tighten in June, with the majority willing to wait to assess the economy’s recovery from a snow-blighted first quarter.
What Our Economists Say:“Survey data point to the upward trend in pay growth reasserting itself while the unemployment rate doesn’t look like it has much room fall before sparking inflationary pressure. Taken together, we continue to expect the central bank to lift rates in August.”
--Dan Hanson, Bloomberg Economics
Overall, the figures point to healthy demand for labor, with the number of vacancies rising to the highest since records began in 2001 and the rate of inactivity -- people neither in work nor looking for a job -- falling to an all-time low.
“It’s clear that the labor market is still growing strongly,” said Matt Hughes, a senior statistician at the ONS.
With wage growth running ahead of inflation, households are enjoying a return to real spending power after a yearlong pay squeeze. They may not be out of the woods just yet though, with a report tomorrow forecast to show inflation picked up again in June.
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