Monetary Policy & Inflation | UK
Strong Employment, Weaker Wages – Continue to Expect BoE Pause
- By Henry Occleston
- 4 min read
UK January ONS and February HMRC labour market data showed an upside surprise to employment growth, which allowed unemployment to remain stable, slightly to the downside on February MPR expectations, while the pattern of wage growth was more dovish, with signs of sharply easing private regular pay growth.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Summary
- UK January ONS and February HMRC labour market data showed an upside surprise to employment growth, which allowed unemployment to remain stable, slightly to the downside on February MPR expectations, while the pattern of wage growth was more dovish, with signs of sharply easing private regular pay growth.
- Together, this has not yielded enough to suggest that the BoE will be concerned their MPR forecasts were too dovish, and hence I continue to expect the BoE will choose to pause at their March meeting.
- Tomorrow’s Budget will be the data to watch from here – it is expected to provide marginally more support to consumers through a lower post-April household energy price cap (EPG cap to stay at £2,500, rather than rise to £3,000), but be primarily focused on business investment and medium-term productivity.
Unemployment stayed steady at 3.7% on an unchanged activity rate (63.3%) and a strong rise in hiring (+26k MoM).
Vacancies, too, dropped, and the vacancy-to-unemployment rate has declined to 90%, a continued decline from the highs of Q3 2022 (around 105%), but still very high by historic standards.
The YoY rise in employment growth (+309k) has been relatively consistent with DMP survey data which has pointed towards a tick up in employment growth expectations.
Given that the unemployment rate remains at least relatively close to BoE forecasts, the most important factor is the wage growth.
There, 3MMA YoY regular (+6.5%) and total (+5.7%) wage growth are both beginning to decline.
Private regular pay growth (the BoE’s main focus right now in the interests of second-round price effects) has dropped sharply to 6.2% YoY from 7.2%. That trajectory is close to being in line with the BoE’s estimate for private wages to be consistent with 6% YoY for 2023.