Markets brace for 'very modest expansion' in UK GDP tomorrow amid 'mixed bag' of jobs data

Tuesday’s UK jobs market report was a bit of a mixed bag if truth be told. There were some reasons for quiet optimism.

The almost perpetual shedding of jobs appears to have halted over the summer, with payrolled employment rising by a modest 10,000 over the course of July and August, while revisions to the previous data indicates a slightly smaller contraction in employment since last year’s budget than previously believed (-90k vs. -126k).

In reality, all this really does is put lipstick on a pig, with the optimistic framing of the data in the mainstream media masking the fact that Britain’s labour market continues to show clear signs of slack, characterised by falling wage growth, a rising jobless rate and an inability to add jobs despite an increase in the population.

There was little reaction in the pound to the release of yesterday’s data, which in our view doesn’t really change the narrative too much for the Bank of England. In isolation, the frailty evident in the jobs market warrants greater policy easing, but nagging concerns about inflation are keeping policymakers cautious.

We now await Thursday’s August GDP data with great intrigue, with markets bracing for only a very modest expansion.