UK Employment, Wages, And Services Inflation
Financial markets began the week pricing in three Bank of England (BoE) rate hikes over the next 12 months. We’re skeptical, as without the Iran War, we’d likely be debating the number of rate cuts rather than even considering hikes. Why? The UK labour market has been languishing for over a year, with payroll job growth recording a loss of 100,000 jobs in April (subject to revision). Adjusted for labour force size, that is roughly equivalent to a 500,000 monthly job loss in the U.S. Given large job losses, the UK’s single-month unemployment rate climbed to 5.6% in April, the highest reading in over a decade (including Covid)! Further, a weak labour market in the UK has crimped wage growth, and services inflation has slowed as a result. Core inflation, including housing costs (CPIH), has now moderated to 2.8% as of April, down from 4.5% just one year ago, largely due to cratering services inflation. The economic data leads us to wonder: Will the Bank of England really hike with labour languishing?
