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UK Employment Report on Deck

H.S. Borji
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The Office for National Statistics will release its monthly employment report on Wednesday, providing key insights about UK employment and average earnings growth. The report is expected to show the labour market continued to improve in August, as average earnings rebounded and jobless claims continued to decline.

The UK unemployment rate declined 0.1 percentage point to 6.4 percent in the April to June period, the lowest level since 2008. Meanwhile, the number of workers receiving jobless benefits declined 33,600 to 1.01 million in July.

Strong employment numbers were offset by weak earnings growth, which continues to point to spare capacity in the labour market. Average earnings grew at an annual rate of 0.6 percent in the three months through June. That was the slowest rate since record keeping began in 2001. Including bonuses, average earnings declined 0.2 percent in the same period, official data showed.

Wednesday’s report is expected to show UK unemployment fell to 6.3 percent in the three months through July, while the number of workers receiving unemployment benefits declined another 30,000 in August.

Both earnings gauges are expected to improve in the three months through July. Average earnings excluding bonuses are forecast to increase 0.7 percent annually in the May to June period. Including bonuses, average earnings are forecast to rebound 0.5 percent.

The UK labour market has experienced a tremendous recovery over the past 12 months, but more jobs have not translated into meaningful wage growth. Average earnings are trending at less than half the rate of inflation, as the cost of living squeeze continues to impact UK households.

Consumer inflation rebounded in August, the ONS revealed today. Consumer prices rose 0.4 percent, following a 0.3 percent decline in July. This translated into an annualized rate of 1.5 percent.

So-called core prices, which strip away volatile elements such as food and energy, rose 1.9 percent in the 12 months through July, outpacing forecasts.

Stubbornly weak earnings growth has weighed on the Bank of England’s policy outlook. The likelihood of a 2014 rate hike diminished last month after the BOE cut its pay growth forecast in half to 1.25 percent by the end of the year. According to the BOE, weak earnings growth is a symptom of underlying slack in the economy, which will require accommodative policies for a while longer.

However, not all central bankers are on board with keeping interest rates low. The August Monetary Policy Committee meetings resulted in the first split vote on interest rates in more than three years, as MPC members Martin Weale and Ian McCafferty voted to raise the Bank rate 0.25 percentage points. According to these central bankers, recent declines in joblessness would serve as a catalyst for higher wage growth in the near future.

The minutes of the September 4 MPC meetings, which are due on Wednesday, are expected to reveal another 7-2 split vote on interest rates.

The BOE has kept its target for the overnight rate at 0.5 percent since March 2009. No changes to monetary policy are expected before the first quarter of next year.

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