Hints of Positivity in Jobs Data, But Iran War Could Upset the Balance
- Written by: Gary Howes
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Jobs market stabilises, but wages are cooling sharply: The Bank of England would cut if it weren't for the war.
New data on the British jobs market showed a welcome increase in employment in the three months to January, which was enough to keep the unemployment rate steady at 5.2%.
The ONS Labour Force Survey reported an 84k 3m/3m increase in employment for January while another measure of employment - HMRC payrolls - showed a rise in full time employment of 20K in February.
The takeaway on the jobs front is one of stability, but when it comes to pay, there's a clear and concerted trend of cooling as wage growth (ex-bonuses) slowed to 3.8%, which is the lowest since 2020.
It speaks of growing slack in the labour market and as payrolls cool, so too will demand in the economy.
That cooling demand will exact a big hit on inflation in the coming months, which will be welcomed by the Bank of England.
In fact, the Bank would cut interest rates today on the back of these data, judging that the easing threat of inflation means the economy can do with a boost from lower interest rates.
However, the war in the Middle East changes the reaction function, and the Bank simply cannot lower rates when it knows another inflationary impulse is barreling down on the UK.
Surging gas and oil prices will raise costs across the economy in the coming months, and the Bank will hope that if there are no second-round inflationary effects, it can cut again later in the year.
This is especially so if the war hits UK employment, just as we see signs of the labour market stabilising.
"The cost pressures arising from the conflict in the Middle East are also set to place an additional strain on employers, many of whom may look to employment as an area to make savings," says Alex Hall-Chen, Principal Policy Advisor for Employment at the Institute of Directors.
