However, while the employment numbers were positive, most eyes were focused on the earnings growth figures, which disappointed analysts. Most were expecting wages to have grown by 1.8% over the period, down from 1.9% in the preceding three months, but the figure came in at 1.7%.
Hargreaves Lansdown senior economist, Ben Brettell explained that the reason for the focus on earnings, is, that the BoE’s decision on whether or not to raise rates is currently predicated largely on whether or not there remains slack in the labour market.
“If pay growth continues to improve, this removes a key barrier to higher interest rates,” he said, but added: “In its February Quarterly Inflation Report the Bank raised its wage growth forecast for 2015 to 3.5%. This looks optimistic to me, and given the subdued outlook for inflation, I expect rates to remain at 0.5% well into 2016.
This sort of subdued growth expectation is fairly widespread and was most recently evident in the reaction to weaker than expected industrial growth data out the week prior, that saw sterling drop to a five-low.
However, for every pessimist on UK growth, there seem to be just as many right now that hold the opposing view.
Indeed, in its April Market perspective piece, Rothschild global investment strategist, Kevin Gardiner, in a piece on the why the UK election is unlikely to have as much of an impact as some believe (another divisive talking point at present) said: “The UK economy is in better health than generally realised, even now. The public debate is still pessimistic: pundits focus, for example, on poor productivity (despite questionable data); on the sub-“trend” level of output (is a trend shaped by an unsustainable pre-crisis starting point very helpful?) and on the (misleading) level of (gross) debt.
As reason for his view, he explains: “They are probably missing the extent to which rapid job creation and lower oil prices are boosting disposable incomes, and the impact of a rising population on trend growth (properly defined).”
This division between pessimism and optimism is not, however, just confined to the outlook for growth in the UK. Consensus remains divided on the outlook for US, Japan and Europe and, increasingly on the value of their respective stock markets.While there seems to have been a shift in allocations from the US to Europe over the last few months as investors grow more concerned about the level of US valuations and a little less concerned about the outlook for Europe, what is lacking in many of these moves is the level of conviction that usually accompanies such high valuations.
Part of the reason for this is that, while valuations are undoubtedly high, the forces driving them to such lofty levels are no longer solely in the hands of the market itself, but rather they have been for some time at the beck and call of central bankers.
New monetary regime
This “new monetary regime” as Anthony Rayner, co-manager of Miton’s multi asset fund range describes it, brings with it a number of new issues, in particular, credibility.
“In the few decades before the Great Financial Crisis (GFC), inflation targeting was the main focus for central banks and it played a positive role in their overall credibility: the objective was clear, measurable and, in most developed western economies, achieved,” he pointed out.
“Since the GFC the objectives of central banks have broadened, and how progress should be measured and whether it has been achieved has become a lot more complex. As a result, credibility has become even more intangible and ‘trust us’ phrases, like head of the European Central Bank (ECB) Mario Draghi’s “we’ll do whatever it takes”, have become much more common.”
The problem with this is that as the measures by which one gauges success and failure of a central bank broaden out, so markets have grown increasingly uncertain about which forces to focus on when trying to estimate the value of assets – a job made harder by the amount of pressure being placed on policy makers by politicians, some with stubbornly high unemployment levels.
All of this means that, while markets continue to flirt with record levels, be they unemployment, employment or stock market valuation, fewer and fewer participants seem certain about their views, nor, are they inclined to make too many bold decisions.
This has left an increasingly large number of people stuck in the middle with their their eyes focused on one end or the other, waiting for someone to blink so they can make a dash for their respective sides, which leaves the strong possibility that signs will be missed and many will be trampled. From my vantage point, Friday’s data did little to clear up the mud, if anything it made the next decision by the BoE less clear, but, as with everyone else in the middle at the moment, I could be very wrong.
