UK Employment Data Sends Mixed Signals
The UK labor market is showing better-than-expected performance since the Iran war began, although signs of a slowdown remain. Data from the Office for National Statistics showed on Thursday (June 17) that the number of workers on payrolls rose by 2,000 in May, better than expectations for a 23,000 decline. April's decline was also revised down to 53,000 from an initial estimate of 100,000, while the unemployment rate fell to 4.9% in the three months to April.
Despite the stronger-than-expected headline data, labor demand remains weak. Job openings fell to 707,000 in the three months to May, the lowest level since early 2021. Private sector wage growth also slowed to 2.9%, the lowest since 2020, while real wage growth remained at just 0.3%.
These conditions provide mixed signals for the Bank of England. On the one hand, the labor market is not weakening as rapidly as feared after the energy shocks from the Middle East conflict. However, companies remain cautious about hiring, with payroll data showing 64,000 jobs lost since the Iran war began.
For monetary policy, the wage slowdown is a crucial factor. If wage growth weakens, demand-side inflationary pressures could be more manageable, reducing the need for the Bank of England (BoE) to raise interest rates. This data also comes after lower-than-expected UK inflation and a decline in global energy prices after the US and Iran agreed to a ceasefire to reopen the Strait of Hormuz.
The BoE is expected to keep interest rates at 3.75% in its latest decision. Markets are still pricing in around 33 basis points of tightening by the end of the year, but the case for a rate hike this week appears weaker as inflation, wages, and labor demand begin to show signs of cooling.
The market's next focus will be on the BoE's decision, the composition of the Monetary Policy Committee's vote, and the central bank's comments on inflation and the labor market. As long as private sector wage growth continues to slow, the BoE's room to hold interest rates may remain open even if inflation has not yet fully returned to target. (arl)
Source: Newsmaker.id
