UK unemployment fell to 4.2% during July this year, its lowest level since February, according to the latest figures from the Office for National Statistics (ONS). This came in 20 basis points below the Bank of England’s forecast of 4.4%.
The number of payrolled employees also ticked up by 14,000 between May and June 2024, having risen by 227,000 on an annual basis to June 2024.
Elsewhere, annual total earnings growth, including bonuses, stood at 4.5%, although this was affected by one-off NHS bonuses paid last year. This still comes in at its slowest pace in more than two years, while pay excluding bonuses increased by 5.4% year-on-year.
See also: Newton’s Bhavin Shah: What the new macro regime means for multi-asset investors
Michael Brown, market analyst at Pepperstone, said both of these metrics have “cooled considerably of late” but “remain incompatible with a sustainable return to the 2% inflation target over the medium-term”. “Furthermore, additional upside earnings risks remain, particularly after the recently announced above-inflation public sector pay increases.”
He added: “This is likely to be of continued concern for the hawks on the BoE’s MPC, four of which dissented in favour of maintaining Bank Rate at the August meeting, with a 25bp cut having been delivered on a wafer-thin 5-4 majority. Even for the five that did vote for a cut, some viewed such a decision as ‘finely balanced’.
“Policymakers may take some solace from today’s data, given the cooling in earnings growth, and better-than-expected unemployment data, though there is little in today’s employment figures that is likely to hasten the pace of policy normalisation, particularly with underlying inflationary pressures remaining persistent, ahead of the July CPI report due tomorrow morning [14 August].”
Neil Birrell, chief investment officer at Premier Miton Investors and lead manager of the Premier Miton Diversified fund range, said while weak US jobs data recently spooked markets, “there is not need to worry about that in the UK”.
“The labour market is stronger than expected, with wage growth pretty much in line. The UK economy is performing well, which will be a boost to the new government, but there probably isn’t enough in these numbers to change Bank of England policy for now.”
See also: IA: Equities experience positive quarter after June £1.2bn inflows
Richard Carter, head of fixed interest research at Quilter Cheviot, said that out of UK labour market, inflation and GDP data all due out this week, unemployment figures have presented “the first surprise”.
“This morning’s wage growth print will be welcomed by the BoE. Annual growth in employees’ average regular earnings (excluding bonuses) fell to 5.4% in April to June 2024, while annual growth in total earnings (including bonuses) fell to 4.5%, marking the lowest wage increase seen for two years.
“Though wage growth is heading in the right direction as far as the BoE is concerned, for now it continues to outpace inflation and in real terms, regular earnings are currently rising 3.4% which could help buoy the economy alongside increased consumer confidence following the first rate cut.”
He pointed out that another dataset is due ahead of the Monetary Policy Committee’s next rate decision next month but that, for now the fall in wage growth “may provide some reassurance that inflation pressures are relatively well contained and may therefore allow the Bank of England to continue cutting rates in the coming months”.
“Markets have been pricing in a more aggressive path of rate cuts in the US than the UK, and we will likely have a clearer picture of what the Bank of England’s next steps could be by the end of the week once we have a better idea of the current state of the economy.”
Luke Bartholomew, deputy chief economist at abrdn, said today’s unemployment figures present a “mixed bag” for policymakers, with slowing wage growth playing into the BoE’s expectations, but the fall in unemployment potentially sparking concerns of a resurgence in pay growth and thereby making the Bank’s inflation target more challenging.
“But given the various methodological issues surrounding the unemployment data at the moment, policymakers may be inclined to play down the signal from the unemployment rate,” he reasoned. “The picture may look a little clearer after this week’s inflation and GDP data, but, for now, there is nothing in this report that is likely to cause investors to meaningfully reassess expectations of future rate cuts later this year.”
