020 7898 0500Yesterday the analytics of the UK employment component was released. The headline unemployment rate, along with the claimant change, surprised analysist expectations.
The unemployment rate ticked lower from 4.8% to 4.7%, which is a positive. However, the main focus was on the two other figures, the claimant change – which measures the amount of new unemployment benefit claims – and the average earnings inflation. The claimant change decreased, having posted a figure of -11,300 against an expectation of claims growing by over 3,000. Average earnings inflation for the previous three-month period reported a rate of 2.2%, a move lower from last month’s figure of 2.6%.
Based on the current run rate, inflation and average earnings are converging and will cross over in the future. The net effect of the rate of inflation being higher than average earnings is less consumer spending, due to higher prices.
Ahead of today’s UK interest rate decision, it was interesting to see the results of The Times newspaper’s shadow monetary policy committee. The shadow committee is a group of economists/analysts who vote as if they were on the BoE monetary policy committee. This provides the markets with an indication of current conditions and an early indicator of how the BoE could vote.
The Times shadow committee stated that the BoE should prepare for an increase in interest rates next month, with three out of the nine members voting for a hike this month. Will the BoE share the same sentiment as inflation continues to push higher? The rhetoric from BoE Governor Mark Carney and other members will be closely analysed, as will the vote breakdown. The direction of sterling will be heavily influenced by this, and also the future differential between UK and US interest rates.
