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21 Jan 2016
UK labour market tightens, but BoE won’t - Nomura
FXStreet (Delhi) – Philip Rush, Research Analyst at Nomura, suggests that the UK unemployment beat expectations again amid mounting signs that the labour market is at least as tight as it was at the peak of the last super-cycle.
Key Quotes
“The latest labour market report has broadly beaten expectations again, although this does not make much difference to the policy outlook. Surprises remain mainly in labour market volumes rather than wages. Average weekly earnings growth ex-bonuses was a tenth stronger than expected (at 1.9%) but this was still a 0.1pp slowdown and so it does not provide the undeniable signal that real inflationary pressures are already here.
Absent such a reversal, the MPC can continue to express puzzlement at the weakness relative to employment and keep policy low for long. The committee is aware that compositional effects are biasing down the average pay numbers, with like-for-like offers to the marginal workers being recruited remaining much stronger. But with spot consumer price inflation low too, the simple story of soft headline wage/price numbers carries more weight with the MPC.
So long as spot inflation remains subdued, the MPC looks unlikely to raise rates though. The Fed has more confidence than the BoE that inflation will follow through the Phillips curve, contributing to its less dovish policy response.
With compositional effects bearing down on pay and productivity, unit wage cost pressures are higher, but a selective reading of the data stops the BoE from responding.”
Key Quotes
“The latest labour market report has broadly beaten expectations again, although this does not make much difference to the policy outlook. Surprises remain mainly in labour market volumes rather than wages. Average weekly earnings growth ex-bonuses was a tenth stronger than expected (at 1.9%) but this was still a 0.1pp slowdown and so it does not provide the undeniable signal that real inflationary pressures are already here.
Absent such a reversal, the MPC can continue to express puzzlement at the weakness relative to employment and keep policy low for long. The committee is aware that compositional effects are biasing down the average pay numbers, with like-for-like offers to the marginal workers being recruited remaining much stronger. But with spot consumer price inflation low too, the simple story of soft headline wage/price numbers carries more weight with the MPC.
So long as spot inflation remains subdued, the MPC looks unlikely to raise rates though. The Fed has more confidence than the BoE that inflation will follow through the Phillips curve, contributing to its less dovish policy response.
With compositional effects bearing down on pay and productivity, unit wage cost pressures are higher, but a selective reading of the data stops the BoE from responding.”