Analysts on Tuesday were weighing the signs of weakness and resilience in the latest UK labour market data, as the economy continues to outperform last year’s doomsday projections.
According to the Office for National Statistics, the UK jobless rate was 3.8% in the three months to February. This was higher than FXStreet-cited market consensus, which had expected the reading to remain unchanged from 3.7% in the three months to January.
‘The increase in unemployment was driven by people unemployed for up to six months,’ ONS explained.
‘This is likely to be music to the ears of Bank of England policymakers, who want to see evidence that the tight labour market is easing, before taking the pedal off rate hikes,’ said Hargreaves Lansdown’s Susannah Streeter.
To Oanda’s Craig Erlam, the jobs print was a ‘mixed bag’.
‘The BoE will no doubt be frustrated at the lack of progress on wages,’ he said.
In the three months to February, annual growth in average total pay, including bonuses, was 5.9%, unchanged from the upwardly revised figure in the three months to January. However, it was higher than the market consensus of 5.1%.
Excluding bonuses, average earnings rose 6.6%, also unchanged from the upwardly revised figure last month, and higher than the consensus of 6.2%.
Both paces still trail UK consumer price inflation, which stood at 10.4% in February.
‘If the move higher in unemployment is sustained, the additional slack in the labour market may give [the BoE] confidence that [wages] will come down,’ Erlam continued.
‘Of course, with inflation still above 10%, the case for pausing rate hikes is already extremely challenging and markets strongly expect another 25 basis points next month and maybe one more before the end of the year,’ he added.
In the period from January to March, vacancies fell by 47,000 on the quarter to 1.1 million.
The uncertain economic outlook for the UK means its companies are ‘adopting a brace position’, according to HL’s Streeter.
‘This doesn’t bode well in terms of growth propulsion as expansion plans are clearly taking a backseat, just at a time when the economy needs an added thrust to drag it out of stagnation,’ she said.
The data also revealed further evidence of the hit from industrial action, after the most recent gross domestic product print showed growth in February was hindered by strikes, especially in the education sector.
The ONS noted there were 348,000 working days lost to strikes during February, rising from 210,000 the month before. Three-fifths of the strikes occurred in the education sector, ONS said.
‘This is having a knock-on effect to economic growth, which in turn knocks on to business confidence and stymies job creation,’ AJ Bell’s Danni Hewson commented.
‘There are big questions about those struggling with long-term illnesses. NHS strike action has swelled already untenable waiting lists, adding to a problem that‘??s just not going away.’
Berenberg analyst Kallum Pickering noted that, whilst unemployment ticked up slightly, it remained close to the near 50-year low of 3.5% last August.
‘Back in October, we had projected that the unemployment rate would rise to 4.7% by Q1 2023 as the huge gas price shock and sharp tightening of financial conditions would tip the UK into a mild recession during the winter,’ he recalled.
‘Largely thanks to a higher-than-expected willingness of households and businesses to utilise their balance sheet strength to buffer the shocks, the UK has avoided recession.’
The real impact has been on the hit to real incomes, he noted, with the impact on employment remaining modest.
‘[While the data] show some minor signs of weakness, the overall picture is one of resilience,’ Pickering said.
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