Investment Clock insights

Mixed fortunes - unemployment falls, but employment growth slows down as Brexit approaches


Melanie Baker

14 August 2018

There was some welcome news for households in today’s labour market figures – including falling unemployment and upward revisions to last month’s regular pay growth figures.  However, falls in the unemployment rate were flattered by a rise in inactivity and employment gains slowed.
Today’s report looks consistent with Bank of England (BoE) forecasts – if anything, a touch stronger, with the unemployment rate declining two tenths to 4.0% (rather than one-tenth) and regular pay growth a touch higher than forecast in Q2.  The data continue to look consistent with further gradual rate rises (Brexit permitting), with our central view still for a rise in May next year.  Over the next few months though, we’ll be watching for signs that UK firms are pressing pause on both investment and hiring as Brexit approaches. 
Pay growth dips, but previous month revised up:  Whole economy regular pay growth – at 2.7% on the headline measure - was in line with consensus, with last month revised up a touch to 2.8%.  Year-on-year regular pay growth ticked up and private sector pay growth was steady at 2.9% year-on-year.   BoE staff have been expecting pay growth to dip a little, forecasting 2.6% for regular pay growth in Q2.
Employment gains were weaker than consensus: The number of people in work increased by 24,000 (consensus: 93,000 employment gain).  The number of full time employees rose 67,000 in Q2, though the number of part-timers fell. 
Unemployment fell more than expected, but flattered by a rise in inactivity: Inactivity rose 99,000 in Q2, helping to explain the drop in the unemployment rate to 4.0% from 4.2% (consensus: steady 4.2% unemployment rate) – BoE staff had been expecting a 4.1% figure (as of the time of the August Inflation Report). Furthermore, there were declines in some other measures too which included – the numbers of temporary employees who couldn’t find a permanent job and the number of part timers who couldn’t find a full time job.

There was some welcome news for households in today’s labour market figures – including falling unemployment and upward revisions to last month’s regular pay growth figures.  However, falls in the unemployment rate were flattered by a rise in inactivity and employment gains slowed.

Today’s report looks consistent with Bank of England (BoE) forecasts – if anything, a touch stronger, with the unemployment rate declining two tenths to 4.0% (rather than one-tenth) and regular pay growth a touch higher than forecast in Q2.  The data continue to look consistent with further gradual rate rises (Brexit permitting), with our central view still for a rise in May next year.  Over the next few months though, we’ll be watching for signs that UK firms are pressing pause on both investment and hiring as Brexit approaches. 

Pay growth dips, but previous month revised up:  Whole economy regular pay growth – at 2.7% on the headline measure - was in line with consensus, with last month revised up a touch to 2.8%.  Year-on-year regular pay growth ticked up and private sector pay growth was steady at 2.9% year-on-year. BoE staff have been expecting pay growth to dip a little, forecasting 2.6% for regular pay growth in Q2.

Employment gains were weaker than consensus: The number of people in work increased by 24,000 (consensus: 93,000 employment gain).  The number of full time employees rose 67,000 in Q2, though the number of part-timers fell. 

Unemployment fell more than expected, but flattered by a rise in inactivity: Inactivity rose 99,000 in Q2, helping to explain the drop in the unemployment rate to 4.0% from 4.2% (consensus: steady 4.2% unemployment rate) – BoE staff had been expecting a 4.1% figure (as of the time of the August Inflation Report). Furthermore, there were declines in some other measures too which included – the numbers of temporary employees who couldn’t find a permanent job and the number of part timers who couldn’t find a full time job.

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.