Investment Clock insights

UK labour market: First signs of trouble?


Melanie Baker

14 May 2019

UK labour market: First signs of trouble?
Analysts have been expecting a bit of deterioration in the official UK labour market data for a while given heightened levels of uncertainty for businesses and indications from business surveys of fading employment intentions.  The Q1 headlines were solid – particularly the lower unemployment rate. However,  there were signs of deterioration under the surface and earnings growth slowed again, which will help contain any pressure on the Bank of England (BoE) to raise rates.
The headline data were, again solid. Yet another one-tenth fall in the unemployment rate to 3.8%– just a reminder that at 3.8%, the UK unemployment rate hasn’t been this low since Q4 1974. There were decent gains in overall employment of 99K over Q1 (though that was less than expected). There were further falls too in temporary employees who couldn’t find a permanent job.  
Dig a bit deeper and things weren’t quite so good…  The number of full-time employees actually fell 55K in Q1 (there was a big rise in full time self-employment).  The numbers employed part-time who couldn’t find a full-time job rose.  The number of vacancies fell too.
A bit of fraying around the edges isn’t surprising: 1) given the Brexit backdrop (on which note, there was a pre-Brexit  jump in EU-born employment levels in Q1); 2) given how very low the unemployment rate is, it was inevitable that at some point employment growth would disappoint.
Slower pay growth: As for earnings, regular pay growth was a tenth lower at 3.3% (3M/Y) in line with consensus in March. Year-on-year private sector regular pay growth fell to 3.2% from 3.4%. Looking through the details, flat or slowing year-on-year pay growth figures were apparent in several major sectors in March.

Analysts have been expecting a bit of deterioration in the official UK labour market data for a while given heightened levels of uncertainty for businesses and indications from business surveys of fading employment intentions. The Q1 headlines were solid – particularly the lower unemployment rate. However,  there were signs of deterioration under the surface and earnings growth slowed again, which will help contain any pressure on the Bank of England (BoE) to raise rates.

The headline data were, again solid. Yet another one-tenth fall in the unemployment rate to 3.8%– just a reminder that at 3.8%, the UK unemployment rate hasn’t been this low since Q4 1974. There were decent gains in overall employment of 99K over Q1 (though that was less than expected). There were further falls too in temporary employees who couldn’t find a permanent job.  

Dig a bit deeper and things weren’t quite so good…The number of full-time employees actually fell 55K in Q1 (there was a big rise in full time self-employment). The numbers employed part-time who couldn’t find a full-time job rose. The number of vacancies fell too.

A bit of fraying around the edges isn’t surprising: 1) given the Brexit backdrop (on which note, there was a pre-Brexit  jump in EU-born employment levels in Q1); 2) given how very low the unemployment rate is, it was inevitable that at some point employment growth would disappoint.

Slower pay growth: As for earnings, regular pay growth was a tenth lower at 3.3% (3M/Y) in line with consensus in March. Year-on-year private sector regular pay growth fell to 3.2% from 3.4%. Looking through the details, flat or slowing year-on-year pay growth figures were apparent in several major sectors in March.

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.