Lindsay James, investment strategist at Quilter Investors comments on the latest UK labour market statistics:
“Data published today shows the UK continues to see wage growth far outpace headline inflation. Meanwhile, unemployment remains the same as last month at 4.4% and vacancies continue to decline as uncertainty ahead of the general election likely amplified the ongoing normalisation of vacancy rates back to pre-pandemic levels.
“Just yesterday, new data pointed to stubborn levels of core inflation, driven in part by persistently high wage growth in an economy short of workers. This is a key reason as to why even with headline inflation standing at the target of 2%, the Bank of England is yet to cut interest rates. Recent comments from the Prime Minister have emphasised that wage restraint is needed and will be shown across the public sector. However, with the labour participation rate continuing to fall, and now standing at 74.4%, nearly two percentage points lower than its level immediately prior to the pandemic, ministers must look at ways to arrest this decline if they want pay restraint to be sustainable.
“Despite the difficult questions this will pose the Bank of England, strong wage inflation has undoubtedly supported a pick-up in retail spending. Recent month on month GDP growth of 0.4% was linked not only to this, but also to improving consumer confidence and the anticipation of coming rate cuts and improved political stability.
“Looking ahead to 1 August, it seems marginally less likely that the Bank of England’s first rate cut will materialise after inflation failed to cool any further, so September may be a more reasonable expectation for an initial easing of monetary policy. Nonetheless, inflation is still at target and the labour market is showing some signs of cooling, so we are likely to see more members of the monetary policy committee voting for a cut in the August meeting.”
