The British Labour Market Loses Further Momentum As The BoE Considers Its Rate Stance

    TOP1 Markets Analyst 2023-10-25 11:57:44

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    Although the unemployment rate remained unchanged at 4.2% in a revised computation that incorporates declining household survey responses, there was an 82,000 decrease in the employed population and a 74,000 increase in the unemployed.

     

    The Bank of England (BoE) is closely observing the labour market as it deliberates on whether it is necessary to recommence increasing interest rates. Following fourteen consecutive hikes, interest rates were put on pause in September.

     

    To account for a decline in household responses to the Labour Force Survey (LFS), which is typically the foundation of job market statistics in the United Kingdom, the experimental figures incorporated additional data sources.

     

    According to the preceding methodology, the unemployment rate for the three months leading up to July was inaccurately reported as 4.3%, as opposed to 4.2%.

     

    Nonetheless, the new data revealed a greater degree of labour market laxity than what the BoE had anticipated in August, when it projected a 3.1% unemployment rate for the entire third quarter.

     

    "We have our doubts that the (BoE) will resume its tightening cycle at its meeting next month in response to the new statistics," said Thomas Pugh, economist at accountants RSM.

     

    The vast majority of economists surveyed by Reuters on Tuesday believe the Bank of England (BoE) will maintain its Bank Rate at 5.25% on November 2.

     

    Nonetheless, central bank officials continue to be concerned that a rapid acceleration of wage growth could exacerbate inflationary pressures within the economy.

     

    According to data released by the Office for National Statistics (ONS) last week, average earnings for the three months leading up to August were 7.8% higher than the same period a year ago. This marked the first decline in the rate of growth since January and was only marginally slower than the record 7.9% set in the three months leading up to July.

     

    "It is probably only a matter of time before the recent loosening of the labour market feeds through into significantly slower wage growth," according to Pugh.

     

    The financial markets responded indifferently to the data released on Tuesday.

     

    In the three months leading up to July, employment decreased by 133,000, according to the most recent ONS estimate, compared to 207,000 in the previous estimate.

     

    In addition to the LFS survey results, the ONS stated that the new methodology included the use of employment data collected by the British tax office over a three-month period and adjustments to welfare claims as a proxy for measuring unemployment, also over a three-month period.

     

    "The fact that these data sources have experienced challenges in the past does not bode well for their current status as more reliable than the official survey," said Tony Wilson, director of the think tank Institute for Employment Studies.

     

    "Hopefully normal service will be resumed in the coming months."

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