UK Labor Market Signals a Need for Caution in Rate Hikes
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The ratio of unfilled job openings to the number of unemployed workers, a ratio that BoE Governor Bailey has consistently referenced, is falling quickly now and will more-than-likely be back to pre-Covid levels within the next couple of months. Unlike the US, where so far a fall in vacancies hasn’t been paired with an increase in joblessness, the UK is experiencing a undeniable increase in the number of people unemployed for less than six months. Unsurprisingly that tends to trigger increases in longer-term unemployment with a lag.
The vacancy-to-unemployment ratio is falling quickly
The bottom line is that with the jobs market cooling and wage growth, for now at least, not coming in as hot, the labour market data does not scream a need for the Bank to keep hiking rates much further. The only thing that won’t please officials is that economic inactivity – that is the number of people neither employed nor unemployed – has started to rise again, driven by long-term sickness and a renewed rise in student numbers. In general the data has been saying that worker supply has been increasing, so this is something to keep an eye on.
Worker inactivity has begun to inch higher again
Ultimately we still expect a rate hike next week, but a number of BoE comments suggest that officials are laying the ground for a pause. We don’t totally rule that out next week, though remember we still have a round of inflation data due the day before the announcement. For now our base case is that September’s hike will be the last.
