Danske Research Team
Danske Bank A/S
The UK labour market statistics released today show that the labour market continued to improve. The unemployment rate (3M) declined from 5.7% in January to 5.6% in February (Danske Bank: 5.7%, consensus: 5.6%). In our view, this is a strong report that supports our call for a BoE hike in November 2015, see also Research UK: We have moved the first BoE hike to November 2015, 15 April.
The unemployment rate is now very close to the Bank of England (BoE)’s estimated medium-term equilibrium unemployment rate at 5.5%. This is more or less in line with the projections from the latest Inflation Report, which suggested that this could happen in Q2 15. In other words, the unemployment rate is close to normal and the slack in the labour market is diminishing, which is important for the timing of the first BoE hike. Hence the fall in the unemployment rate supports our view of a BoE hike later this year.
The number of unemployed in February declined by 76,000 (3m/3m). This was lower than the increase in employment (+248,000 3m/3m), as the number of economic active persons increased by 171,000 3m/3m. From an economic perspective it is very positive that both employment and the workforce are increasing.
Average weekly earnings excluding bonuses (three-month average) increased to 1.8% y/y in February which is good news following two months of decline. Future wage growth is a key determinant for BoE, as higher wage growth is needed for inflation to pick up. We expect nominal wage growth to pick up further this year due to the improvement in the labour market. However, weak wage growth is a downside risk to our expectations of a BoE hike in November.
See the following page for illustrative graphs.
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