UK Labour market gained strength pre-Brexit - ING

James Smith, Economist at ING, suggests that although UK employment recorded a large upswing in May, this is pre-Brexit data and the BoE will focus instead on recent survey evidence that suggests hiring will fall as a result of the EU referendum outcome.

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“Prior to the referendum at least, the UK labour market appears to have gained strength. The average 3M change in employment between March and May showed that 176k jobs were added, substantially above last month’s figure of 55k (which was around of quarter of what it was around the turn of the year). In fact, the single month figure, which considers the change in employment in the three months to May, showed that the economy added the greatest number of jobs since February 2015. Perhaps this is an indication that the uncertainty heading into the referendum didn’t affect hiring to the extent that had previously been assumed, although it is possible that this is simply reflected more heavily in June’s data released next month.

In any case, the main point is that this data is pre-Brexit and thus assumes little relevance for the Bank of England when they meet to decide on the amount of stimulus to add at the start of August. The publication lag means that we won’t receive the first post-Brexit reading until September, although as labour market data tends to lag other parts of the economy, it may be a few months after that before any weakness materially appears in the data. However, survey evidence suggests that unemployment will increase over coming years, with the latest Deloitte CFO survey indicating that 66% of firms expect hiring to be lower over the next three years (we are likely to get further evidence of this from Friday’s PMIs).”