U.K. Payrolls Rise Above Pre-Covid Levels With Record Hiring

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British companies pushed the number of workers on payrolls above pre-coronavirus levels last month, an indication of strength in the labor market that may embolden the Bank of England to raise interest rates.

Payrolls climbed by a record 207,000 last month, according to data from the U.K. tax authority. Separate figures from the Office for National Statistics showed job vacancies rose to 1.2 million, also an all-time high.

The figures suggest a robust recovery in employment is likely to absorb many of the 1 million workers who remained on furlough as the government ended the program last month. Policy makers on the central bank’s Monetary Policy Committee are scrutinizing the data as they weigh when to raise rates, with financial markets pricing in a move in December. 

“The recent hawkish tone from MPC members suggests inflation concerns are now firmly front of mind, lowering the bar for rate increases,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management. “A decent October jobs report could open the door to a hike as soon as the December meeting.”

What Bloomberg Economics Says ...

“The jobs market continued its remarkable recovery in August, which is likely to fuel further speculation of a rate hike this year. How the unemployment data responds to the ending of the furlough scheme in September remains key to the timing of any move. We forecast a slower-than-expected recovery in the second half of the year and a rise in the jobless rate, which will deter the central bank from hiking rates until May.”

--Dan Hanson, Bloomberg Economics. Click for the REACT.

Payrolls were driven by hiring in the hospitality industry and at employment agencies.

Underlying wage growth rose to between 4.1% and 5.6% in the three months through August, well above the 3% prevailing before the pandemic. That indicates price pressures in the economy that have started to concern the central bank. Policy makers have warned that inflation will top 4% later this year, double their target, and will probably prompt a tightening in monetary policy.

The number of people in work rose 235,000 in the three months through August, the biggest quarterly increase since 2015. Unemployment ticked down to 4.5% from 4.6%. 

Chancellor of the Exchequer Rishi Sunak welcomed the figures as evidence the government’s program to get people back to work is succeeding.

“It’s encouraging to see our Plan for Jobs working -- the number of expected redundancies remained very low in September, there are more employees on payrolls than ever before and the unemployment rate has fallen for 8 months in a row,” Sunak said in a statement.

The payroll data are among the most up-to-date information available to BOE policy makers, with the broader unemployment numbers from the ONS carrying a longer lag. 

The first look payrolls at data following the end of furlough comes on Nov. 16, more than a week after the next BOE meeting. Official unemployment numbers for October won’t be published until Dec. 14, two days before the BOE’s final decision of the year.

The U.K. labor market has been plunged into the spotlight in recent weeks, as a number of high profile shortages in key areas led to supply chain chaos and concerns of a spiral in wages and prices.

While that would be a concern for policy makers at the BOE, Prime Minister Boris Johnson has painted it as a positive story for Britain, casting it as part of the economy’s transition away from the European Union.

 “The recovery is testing the capacity of the economy to adjust to a new post-pandemic environment, a task made more difficult by the reduced availability of overseas workers,” said Yael Selfin, chief economist at KPMG UK.  

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