The latest labour market statistical release from the ONS showed:
• The ILO unemployment rate rising to 4.3% from 4.2% previously
• Employment falling by 207k 3m/3m
• Private sector regular pay growth at 8.1% 3m/yr from 8.2% 3m/yr
The latest UK labour market data showed the recent loosening of the labour market continuing. In terms of volumes, the release was very much in line with expectations.
The unemployment rate ticked up to 4.3% from 4.2% previously with employment falling by 207k 3m/3m (cons 195k). The one shift from recent trends was that the inactivity rate rose slightly, by 0.1ppts to 21.1% mainly due to a sharp rise in inactivity amongst younger (aged 16-24) cohorts and students.
That may be a result of summer holidays and likely to reverse in coming months. Inactivity linked to long-term sickness rose again, however, with the overall post-pandemic increase in inactivity still concentrated amongst older cohorts.
The number of vacancies fell again, dropping below 1m (to 989k) for the first time in two years and down from a peak of fall 1.3m in the spring of 2022. The number of payrolled employees (based on HMRC tax data which leads the ILO data by one month) is estimated to have fallen by 1k in August after a fall of 3.5k the previous month.
Regular pay growth was 7.8% 3m/yr, unchanged from the previous period and in line with expectations. Total, whole economy pay including bonuses was 8.5% 3m/yr up from a revised 8.4% 3m/yr previously. However, the total pay (i.e. including bonus)) measure is still being affected by one-off non-consolidated payments made to the civil service and NHS as part of recent pay settlements.
Private sector regular pay (the measure the MPC have indicated they are actually focused on) dipped to 8.1% 3m/yr from 8.2% 3m/yr previously. The MPC remain focused in two aspects of the labour market 1) its overall tightness and 2) private sector pay developments. On 1) there is now sustained evidence therefore that the labour market is loosening, unemployment has risen, the number of vacancies continues to fall which is backed up by survey data of employment intentions.
However, as MPC member Jon Cunliffe noted at last week’s Treasury Committee, "the pay data lag the activity data” and therefore “it takes time for all that to work through". So even if the MPC can begin to feel more confident that the cooling of the labour market will feed through to wage growth it remains too high for comfort in the here and now. We continue to see next week’s meeting delivering a 25bps increase in Bank Rate which we think will mark the end of the current tightening cycle.
