- UK labour market report (Dec 2019): Strong finish to 2019, encouraging signs for 2020- The Pound-to-Euro exchange rate is +0.37% higher @ €1.2045779883449 today- The Pound-to-Dollar exchange rate is +0.29% higher @ $1.304305 todayPound Sterling exchange rates initially dipped on Tuesday on concerns over the global coronavirus economic impact, but recovered after UK real wages hit the highest level since 2008.
The latest UK labour-market data was released on Tuesday. The unemployment rate held at 3.8% in the 3 months to December, in line with consensus forecasts and compared with 4.0% in the same 2018 period. The increase in the jobless claimant count was held to 5,500 for January compared with market expectations of an increase of over 22,000 and previous data was revised to show a decline of only 2,600 from 14,000 originally.Employment growth was also stronger than expected with an increase of 180,000 for the fourth quarter of 2019 from 208,000 previously.According to the ONS, total employment was at a fresh record high of 32.93mn in the fourth quarter of 2019.
The wages data was the main market focus and recorded a net slowdown. Headline average earnings slowed to 2.9% in the 3 months to December from 3.2% previously while underlying earnings growth slowed to 3.2% from 3.4%, the lowest reading since November 2018.
According to the ONS, in real terms (after adjusting for inflation), annual growth in total pay is estimated to be 1.4% and annual growth in regular pay is estimated to be 1.8%. In real terms average real wages also exceeded pre-crisis levels for the first time since March 2008 at £511 per week. The increase in real-terms pay should help underpin consumer spending with the latest retail sales data for January due on Thursday.
In a tweet, Marc-André Fongern, head of research at MAF Global Forex, commented that; "I consider the UK's latest labour market data to be fairly solid, particularly against the backdrop of an exceptionally turbulent December 2019. Fundamentally, the employment market currently provides a solid foundation for an economic recovery.
"Bloomberg economist Dan Hanson stated; “The big job gain and an unemployment rate below 4% is a strong rebuttal of the case for easing by the Bank of England, particularly with a fiscal boost on the way.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the job figures were slightly disappointing but that vacancies and wages are likely to pick up after a post-election survey boost.
"With productivity set to be constrained by recent weakness in business investment, growth in unit wage costs looks set to remain strong enough for the MPC to hold back from cutting bank rate this year," Tombs said.
In its January Monetary Policy Report the Bank of England saw evidence of a slightly softer labour market.
‘Some indicators of labour demand have softened over the past year. Surveys of firms suggest they plan to hire fewer people, the number of vacancies has fallen and labour market churn has dipped. Nonetheless, the unemployment rate has remained low and the labour market appears tight. The MPC’s central projection is for unemployment to stay low in the coming years, consistent with a projected recovery in GDP growth’.
Looking at wages growth; ‘In the MPC’s central projection, pay growth falls slightly over the coming year, partly reflecting the continuing unwind of temporary factors. However, it picks up over the latter part of the forecast period as unemployment falls a little further below its equilibrium rate and productivity growth rises’.
In this context, the wages data will be broadly in line with Bank of England projections.Data releases will, however, continue to be monitored very closely with the CPI inflation data on Wednesday and IHS Markit PMI data on Friday. Within the PMI data, hiring plans by companies will be watched very closely with Sterling sensitive to shifts in confidence.
Pound Sterling recovered some ground after dipping lower in early Europe. GBP/USD traded back above 1.3000 at 1.3030 with EUR/GBP lower at 0.8310. Risk appetite was weaker due to concerns over the coronavirus economic impact, but GBP/JPY traded close to 143.00 after earlier lows near 142.50.
Key Takeaways from Lloyds
Nikesh Sawjani, UK Economist at Lloyds Bank commented;
- "The latest UK jobs report does little to change the narrative that the labour market is tight and either close to or at full employment."
- "The report contrasts somewhat with the more-sober assessment of domestic activity trends made by the recent Q4 GDP report."
- "Looking at the detail of the rise in employment, it is noteworthy that of the 180,000 rise in employment, the increase came entirely from a 203,000 rise in full-time employment, while the number of part-time workers fell 23,000."
- "This view is supported by the latest read on job vacancies, which showed that the number of positions for which employers were actively seeking to recruit from outside their business moved back up in January (+810k), following some moderation in the second half of last year, suggesting that demand for labour has firmed at the start of 2020."
- "Generally, these dynamics should put upward pressure on wages as firms compete for labour, and while this was evident (to some extent) in the latest update on pay trends, the overall pace of pay growth slowed. "
- "Overall, this latest news is a reminder that even current levels of pay growth – in a tight labour market – are inconsistent with market expectations of a lower level of Bank Rate."