Unemployment to Overshoot Bank of England Target
- Written by: Gary Howes
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A new labour market survey provides further evidence the Bank of England's unemployment estimate is too low.
This is according to Lloyds Bank, who have assessed the latest REC/KPMG Report on Jobs.
The report, a monthly survey of hiring, reveals a decent pick-up in the wake of the lifting of budget uncertainty in November.
However, the undercurrents confirm businesses are still struggling. And if unemployment exceeds Bank of England estimates, the case for an aggressive interest rate cutting cycle grows.
The headlines from the report:
○ A modest improvement in hiring conditions as the pace of decline in permanent hirings slowed (46.9 from 44.3).
○ Temporary billings moved back into positive territory to 50.3 from 47.6.
○ Availability of staff also dropped to 58.1 from 66.3. However, vacancies fell to 43.8 from 43.4, lagging the mild bounce in reported recruitment.
Analysing the findings and their implications, Sam Hill, Head of Market Insights at Lloyds Bank says:
○ The tone of respondents was similar to that seen in some of the other surveys, confidence boosted by the removal of Budget uncertainties that had dampened activity over the course of October and November.
○ But the survey data show that overall concerns about economic activity remain elevated, with rising costs (not simply wages) biting into activity and margins.
○ That is probably reflected in the preference for temporary hires over permanent, firms opting for flexibility that is easier to right-size as (uncertain) conditions evolve.
○ And with this improved outcome, we should still see a further contraction in total payrolls in the new year.
○ The BoE’s updated forecast for unemployment to peak at 5.3% (up from 5.1% in November’s MPR) still looks to underestimates the pace of deterioration visible in the labour market.
