U.K. Labor Market Data Strengthens Case for BOE Rate Rise
U.K. Labor Market Data Strengthens Case for BOE Rate Rise
(Bloomberg) --
The U.K. labor market strengthened after the government’s benefit program for those out of work in the pandemic came to an end, bolstering the case for the Bank of England to raise interest rates as soon as next month.
Companies added 160,000 more people to their payrolls in October, while vacancies surged to a record high, according to data released Tuesday. The figures suggest very few of the 1.1 million workers who were on furlough became unemployed when the program finished in September.
That underscored the success of the 19-month plan that protected workers from impact of national lockdowns. The pound rose as much as 0.37% versus the dollar to $1.3465. Traders are also maintaining bets on a Bank of England interest-rate hike in December, nearly fully pricing a 15-basis-point increase.
BOE Governor Andrew Bailey said Monday the jobs data would be one of the last bits of evidence the Monetary Policy Committee needs before deciding when to raise rates for the first time since the pandemic struck.
“The labor market appears to have escaped the end of the furlough scheme relatively unharmed,” Thomas Pugh, economist at the accounting firm RSM UK. “The continued robust recovery in the labor market will reassure those MPC members who were concerned about damage from the ending of the furlough scheme.”
What Our Economists Say ...
“The first official data on jobs since the government withdrew its furlough program suggests it hasn’t derailed the recovery in employment. That news leaves the Bank of England on course to lift rates in December.”
--Dan Hanson, Bloomberg Economics. Click for the REACT.
The next jobs report, which will contain official data on the employment and unemployment rates for October, will be released two days before the central bank’s decision in December. Economists and markets both expect the BOE to hike rates by 15 basis points at that meeting.
“We expect the bank will wait with the first hike until February,” said Yael Selfin, Chief Economist at KPMG UK. “But given the good news this morning, an earlier move in December cannot be ruled out.”
Surveys suggest the vast majority of those furloughed at the end of September returned to work. A Resolution Foundation survey published at the weekend found that only 12% -- around 136,000 people -- were no longer employed in October -- and most of those were inactive rather than unemployed. That chimes with an ONS survey that found only 3% were made redundant.
The Institute for Employment Studies estimates that the pandemic has left the U.K. with a workforce shortage of 950,000. The research group defines that measure as the difference between the number of people in the labour market now and what would have been expected based on pre-crisis trends.
Just over half a million are older workers who have dropped out of the jobs market. Up to a third of that is from lower migration, and the rest are younger people who have gone into education.
The number of unemployed people per vacancy, a key measure of pressure for staff, fell to 1.3. That’s the lowest since at least 1971, according to analysis of the ONS data by the Institute of Employment Studies.
Just over 650,000 people left payrolled employment in October, which is about 100,000 more than the average of the previous six months. However, flows into employment jumped by almost 100,000.
That adds to signs that furloughed workers who lost their jobs quickly found other work. The ONS said responses to its business survey suggest only a small number of people still on furlough lost their jobs when the program ended.
“Overall we estimate that there is a ‘participation gap’ of 950,000, between the number of people in the labor market now and what would have been expected based on pre-crisis trends,” said IES Director Tony Wilson. “Just over half a million of this is explained by older people, and particularly older women.”
The report from the ONS also showed:
- Payrolls were 235,000 higher than when the pandemic struck in February 2020
- Job vacancies rose to a record 1.17 million last month
- Underlying wage growth excluding bonuses was between 3.4% and 4.9% in the quarter through September, up from around 3% before the pandemic
- Unemployment fell to 4.3% in the period, less than the 4.4% rate expected by economists. The number of jobless dropped by 152,000 people to 1.45 million
- Inactivity was unchanged at 21.1%, or about 8.7 million people
- Employment increased 247,000 during the third quarter, faster than the 190,000 rate expected by economists.
“This sugar rush will not last forever, and we can already see the pace of growth starting to slow,” said Neil Carberry, chief executive officer of the Recruitment and Employment Confederation. “We need to keep an eye on tackling unemployment and inactivity.”
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