U.K. Labor Market Stays Resilient as Wage Growth Accelerates

(Bloomberg) --

The U.K. labor market performed better than forecast in the three months through April, which may strengthen the hawkish comments coming from the Bank of England about interest-rate hikes.

The number of people in work rose a greater-than-forecast 32,000 and basic pay growth unexpectedly accelerated to 3.4%, the Office for National Statistics said on Tuesday. Unemployment stayed at a 44-year-low of 3.8%.

While the pace of employment growth was slower than in previous periods, that partly reflects the impact of the original Brexit date of March 29, which affected companies’ investment and hiring decisions. BOE policy makers are trying to look through the noise in the data, and some say the underlying picture suggests an inflationary risk is building.

With productivity growth subdued, that’s further fueling concerns about unsustainable cost pressures. BOE official Michael Saunders warned on Monday that interest rates risk being hiked too late if policy makers wait for Brexit uncertainty to dissipate. He said the economy will probably move to “significant excess demand” over the next two to three years if Brexit goes smoothly.

The pound strengthened after the labor-market data was published and was up 0.2% at $1.2707 as of 9:50 a.m. London time.

What Bloomberg’s Economists Say...

“The surprise strength of this morning’s labor market statistics has bolstered the case for a U.K. rate rise. The decision over whether to act this year is set to become more hotly debated at coming meetings, though on balance, we expect the central bank to hold off pulling the trigger until 2020.”
-- Dan Hanson. Click here to see the full U.K. REACT

The pickup in underlying wage growth leaves pay comfortably outpacing inflation, which averaged just 2% in the period. In April alone, wages rose an annual 3.8%, the fastest pace since 2008. The figure was boosted by settlements in the National Health Service. Wage growth including bonuses slowed to 3.1%

The jobs market has so far defied the wider economic slowdown, possibly because firms are choosing people over investment because hiring is easier to reverse if the economy turns sour. Employment held at a joint-record rate of 76.1% in the latest three months.

“The MPC has already raised rates twice since the Brexit vote,” Saunders said. “We will act again if needed to ensure a sustained return of inflation to target over time.”

His comments echo those of BOE Governor Mark Carney, who last month pushed back against market expectations for almost no tightening by the central bank over the next three years.

In the latest labor-market data, employment growth was nonetheless well down on the 222,000 recorded in the November-January period and the number of vacancies fell by 12,000 in the three months through May. Economic inactivity also increased.

The rise in employment in the latest three months was driven entirely by women, as male employment fell.

“With employment growth among women coming from full-timers, the overall gap between men and women in hours worked in now the lowest ever -- women now average about three quarters of men’s weekly hours, compared with around two-thirds 25 years ago,” said ONS statistician Matt Hughes.

To contact the reporter on this story: Zoe Schneeweiss in London at zschneeweiss@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson, Brian Swint

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