UK: Inflation and unemployment pick up pace – UOB

Lee Sue Ann, Economist at UOB Group, evaluates the latest figures from inflation and the labour market in the UK.

Key Quotes

“The UK’s unemployment rate rose to 5.1% in the three months to December, from 5.0% in November. Employment fell by 114,000, compared with expectations for a 30,000 decline. However, average weekly earnings rose sharply to 4.7% y/y in the three months to December, from 3.7% in the three months to November. The Office for National Statistics (ONS) said part of the explanation was the fall in the number and proportion of lower paid jobs during the pandemic, suggesting that the average for those that have remained in work, those on higher earnings, went up over the period.”

“Meanwhile, UK inflation rose a touch faster than expected in January. CPI accelerated to 0.7% y/y in January, from 0.6% y/y in December. The reading was above consensus of 0.6% y/y… This likely temporary period of above target inflation over the summer is unlikely to prompt a hawkish turn by the Bank of England (BOE), which will be focused on the weakness in the labour market.”

“With the COVID-19 pandemic still taking its toll on busineses and households, and the oulook highly uncertain, the BOE will be cognizant of the risks and hence, likely to maintain a very accomodative monetary policy stance until the recovery is on a firmer footing. At this juncture, we are not ruling out an acceleration in the pace of bond purchases, or changes to the Term Funding Scheme. As for negative interest rates, we are not expecting any further cuts for now, though policymakers will be careful not to shut the door to this option.”