UK labour market data, May 2018 - PwC comments

May 15, 2018

Commenting on the ONS labour market data out today, John Hawksworth, chief economist at PwC, said: 


"The great British job-creating machine kicked back into life in the first quarter of 2018, taking the employment rate to a new record high. Unemployment edged down further and regular pay growth continued to edge up as the labour market has tightened. Real pay growth, excluding bonuses, is now firmly back into positive territory.

"All of this good news stands in marked contrast to the subdued GDP growth of just 0.1% estimated for the first quarter. This estimate could be revised up later but, taken at face value, it suggests that productivity growth turned significantly negative again after a couple of quarters when it seemed to be perking up. This may reflect the fact that the downturn in output due to the cold weather in the first quarter did not lead to job losses given that it was seen as a purely temporary setback.

"Overall, the continued robustness of the labour market may strengthen the hand of those arguing for interest rates to rise sooner rather than later. But the majority of the MPC will probably want to wait for hard evidence of output bouncing back in the second quarter before they pull the trigger on interest rates."



"Today's data is good news in terms of both real wages returning to positive growth and the UK employment rate hitting a new record high. But increasing evidence of a tightening labour market feeding through into higher wages points strongly to an interest rate rise in May.

”On the jobs front, employment growth in the past quarter was not as strong as in some previous periods, but was nonetheless sufficient to push the employment rate to a new record high of 75.4%. 

”The female employment rate also rose to a record high of 71%, which has played a major role in the positive UK jobs trend seen in recent years. This upward trend is partly due to the effect of the rising female state pension age in shifting the historic female retirement age and to continued strong demand for labour in service sectors like health, retail and hospitality where women make up a relatively large proportion of the workforce.

”Last year, earnings growth remained stubbornly low despite strong jobs growth, but it now picking up quite quickly. Real earnings growth has edged back into positive territory, although the level of real earnings still remains some way below its pre-crisis peak, so many workers may still not feel that they are all that much better off.

Evidence of stronger wage growth reinforces the already strong likelihood that the MPC will raise interest rates by 0.25% at its next meeting in May."

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