Industry experts react to UK Labour Market Statistics

Following the latest UK labour market statistics that saw pay (including bonuses) rise 7.2% in the three months to October, but unemployment remain unchanged at 4.2%, industry experts and financial professionals have shared their thoughts with IFA Magazine.

Richard Carter, head of fixed interest research at Quilter:“New statistics from the ONS this morning reveal the UK labour market continues to battle on despite the intense economic pressures it faces. The Bank of England’s next interest rate decision is just days away, and the future of interest rates is becoming ever harder to predict. 

“The ONS has continued using its alternative estimates following concerns around the Labour Force Survey, which show the employment rate was largely unchanged on the quarter at 75.7% dip as the impact of higher interest rates is slowly being realised. Meanwhile, the unemployment rate also remained unchanged at 4.2%. Recent ‘experimental’ data from the ONS’s new Transformed Labour Force Survey suggests the unemployment rate fell to 3.5% in the spring and rose to 3.8% in the three months to August. This new data appears very difficult to trust right now and the ONS has warned against relying on it just yet, but its findings will still make the Bank’s job even harder and potentially give it license to pursue its higher for longer narrative for even longer.

 
 

“Payrolled employees in the UK for November 2023 increased by 333,000 compared to the same period last year, showing the remarkable resilience of the UK’s labour market continues for now. However, the ONS reports that average total pay growth, including bonuses, dipped to 7.2% between August and October, while regular pay growth, excluding bonuses, also fell to 7.3% for the period.

“This dip in pay suggests the Bank of England’s previous interest rate decisions are beginning to have the desired effect and it will likely feel vindicated to continue to hold rates higher for longer as a result. Though today’s figures suggest another step has been taken in the right direction, the Bank will be keen to see a significant slowdown in wage growth before it begins to contemplate the possibility of cutting interest rates.

“Elsewhere, the percentage of those economically inactive also remained largely unchanged at 20.9%. The government has been pushing for an increase in labour market participation in an attempt to boost productivity, but we are yet to see a meaningful reduction here.

 
 

“Businesses have had to navigate incredibly turbulent times over the past few years, and with political tensions ongoing and an election just around the corner, we can expect them to maintain a cautious approach when it comes to staffing levels and pay increases as we enter the new year. These figures will be pivotal in terms of shaping the Bank’s policy direction going forward.”

Julia Turney, Partner, Platform and Benefits at independent consultancy Barnett Waddingham says, “Whilst figures remain steady for the quarter, unemployment has still risen annually, and we are at a critical juncture for the UK labour market. It’s fate lies on concrete, comprehensive government support. Whilst government initiatives announced in the recent Autumn Statement to support disabled individuals entering the workforce is a step forward in re-energising our workforce, these plans are still high level, and we need to look at the labour market’s productivity in its entirety. Employers now need clear direction, cost-effective solutions, and advice to ensure that we can keep the labour market moving in the right direction. 

“Of course, improving productivity isn’t solely the government’s responsibility. Employers hold a pivotal role in driving this transformation. True success demands that employers embrace investment in their workforce through dedication to training and development and create a culture of empowerment and feedback. This isn’t just an HR checkbox; it’s about understanding the link between a valued workforce and business productivity. Moving into 2024, we need to shift the narrative from intentions to strategies in order to create a robust, resilient labour market.”

 
 

Derrick Dunne, CEO of YOU Asset Management, commented: “The UK economy has defied all expectations over the past year and continues to display a level of resilience despite a challenging global macroeconomic backdrop. The rate of unemployment remains unchanged and, while the number of vacancies fell by 45,000 during the three months of July, around 949,000 jobs still need filling, suggesting that the UK’s job market remains relatively hot.

“As a result, workers have been able to ask for increasingly larger pay rises, with annual pay growth registering at 7.2%, including bonuses, in August to October, although that growth has weakened compared with recent months.

“This means that pay growth is now vastly outpacing inflation, which would have been a concern for the Bank of England a few months ago. However, inflation has come down significantly over the past month or so, meaning there is little chance the central bank will once again increase rates when it meets on Thursday.

 
 

“In fact, we expect the next movement on rates will be downward, maybe in the second half of next year or in early 2025, which will of course come as a relief to the millions of borrowers coming off fixed rate mortgages over the next two years.

“In the current market, the message for investors is clear. Maintaining a well-diversified portfolio is crucial to being able to manage a wide range of potential outcomes.”

Lindsay James, investment strategist at Quilter Investors: “Data out today shows a picture of the UK labour market that is continuing to marginally soften, with annual average pay excluding bonuses up 7.3%, down from a rate of 7.7% over the previous period, whilst the number of vacancies declined 4.5% on the quarter. That said, post-covid economic ‘normalisation’ has been playing a significant part in the falling annual growth rate of pay-rolled employees, which boomed in 2022 and has since been returning to more regular growth rates of 1-2%. A continuation in this trend over coming months would however suggest ‘normalisation’ has turned into outright weakness. 

 
 

“Whilst the Monetary Policy Committee may take some comfort from the declining rate of wage inflation ahead of the next rate setting meeting on Thursday, it is running ahead of headline inflation figures and so wages are still growing in real terms. Unemployment was however largely unchanged on the quarter, at 4.2%, and so for now, there is no particular reason for any change in messaging from the Bank of England.

“Inflationary drivers will remain in the spotlight later today as we receive monthly data from the US economy, coming ahead of tomorrow’s FOMC decision. Last month, inflation came in slightly lower than market expectations, subsequently supporting strong market performance in November – so it remains a crucial piece of information that helps to guide investors on the likely path of interest rates. With gas prices having declined 8% in October, this should help to see headline CPI continuing to fall albeit core inflation is expected to see less impact. With the latest US Survey of Consumer Expectations, published yesterday, showing that consumers now expect inflation to be 3.4% in 12 months’ time – down from 3.6% in October and a two-year low – policymakers will be encouraged that higher interest rates do now seem to be having the desired impact.” 

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