UK pay is slowly responding - Natixis

UK labour market continued to tighten in the three months to November as the employment growth was driven by a rise in full-time employment, while the weekly salaries excl. bonuses edged higher to 2.4% 3m y/y, notes Sylwia Hubar, Research Analyst at Natixis.

Key Quotes

“The vacancy rate at the record high in December suggests that further acceleration in pay growth is imminent, which is likely to encourage the BoE to adopt somewhat tighter monetary policy stance this year.”

“The unemployment rate stayed at 4.3% in the three months to November (compared to 4.8% a year earlier) sustained by further growth in employment (+102k over the quarter).”

“The employment and inactivity rates were respectively at the highest at 75.3% and the lowest at 21.2% on record. The average earnings incl. bonuses continued to expand by 2.5% and the earnings excl. bonuses accelerated to 2.4% 3m y/y from 2.3% previously.”

“The UK labour market continued to tighten in the three months to November. The record high employment was attributed to a rise in full-time employment. The number self-employed, which was on the rise following the crisis, decreased by 82k in the three months to November.”

“The number of vacancies in the final quarter of 2017 was at 810k, the highest on record. The growth in vacancies in 2017 has been marked in a broad range of industries. Yet, the skills shortages in some industries have been hindering an efficient match in the labour market.”

“The IHS Markit/REC Report on Jobs based on the survey of recruitment consultancies also confirmed that permanent staff vacancies continued to expand rapidly (at the fastest rate in December since August last year). At the same the survey pointed to a sharp decrease in candidate availability to fulfil permanent jobs and temporary positions in December. The overall demand for labour although somewhat softer stayed strong above the 20- year survey average. Accordingly, starting salaries continued to edge higher amid reduced staff availability and strong demand for labour.”

“Outlook

• The ongoing tightening in the UK labour market is set to finally result in higher pay growth this year (to around 3%) and although this growth will be still below the pre-crisis levels (regular pay growth at 4% over 2001-2007) the pick-up in domestic cost pressures is very likely to be more convincing for the BoE (than the temporary rise in import-price induced inflation has been) to adopt somewhat tighter monetary policy stance.
• Still, the outlook for the UK remains uncertain given that the UK needs to secure a transition deal (up to two-year extension of the UK/EU relations status quo) as early as possible to reassure investors and businesses. On the upside, net trade continues to support economic activity sustaining ongoing strong demand for labour.”