The labour market data in the UK for March and April suggests that the jobs market is softening, the unemployment rate is ticking up mildly, and the claimant count rate is rising. Wage growth is remaining stubborn, but adjusted for inflation, wage growth is rising by a 1.7% annual rate, which is below the Bank of England’s 2% target rate. While a rate cut from the BOE next month is not a done deal and will be dependent on other data points, for example next week’s CPI, this labour market report is unlikely to stand in the way of a cut.
Wage growth remains sticky
The one sticky point is wage growth. Average wage growth failed to decline as expected. Average weekly earnings was 5.7% YoY, excluding bonuses average wage data was 6%. It is worth noting that this wage data is fairly old at this stage, and dates back to March, so things may have changed since then, especially since the April labour market data saw the claimant count rise to 4.1% and the monthly change in payrolled employees fall by 85,000, the market had expected a 20,000 increase.
Unemployment ticks up but remains low
The uptick in the unemployment rate is garnering a lot of attention this morning. It rose to 4.3%, the highest level since July last year, and above the average unemployment rate of the last 5 years, which is 4.2%. However, this is still a very low level, and for the last three years, the unemployment rate has been in an approximate range between 3.5% – 4.5%. This supports the BOE view that the UK’s economy is 1, resilient against higher interest rates, and 2, that disinflation is occurring while there is still virtually full employment. Thus, the rise in the unemployment rate to the top of the medium term range, is not a cause for concern, but it could support a rate cut from the BOE next month.
Job vacancies fall, but inactive workers remain a problem
The details of the ONS labour market report are also worth noting. The number of job vacancies in the UK decreased by 26,000 to 898,000 between February and April. This is the 22nd month of declines, but job vacancies still remain above pre-Covid levels, suggesting that a tight labour market is one of the hangovers from the pandemic. Also, the number of inactive people of working age increased yet again between January and March and now stands at 22.1%. Thus, the decline in payrolled employees in April may not be a sign of a loosening in the UK’s labour market, but it could be a sign of a continued increase in the number of people who are not working in the UK.
We are waiting for the Q1 productivity data that is due later today. In Q4, output per worker actually fell 0.3%. The fact that GDP per capita increased in Q1 could be a sign that productivity increased. If it is good news, then this could be positive for UK assets and for sterling. It is worth benchmarking UK worker productivity with the US, in the US non-farm labour market productivity increased by 0.3% in Q1, which was a sharp decline from recent quarters. Thus, productivity gains higher than the US would be a welcome boost to the UK’s economic backdrop.
What comes next for the BoE
This data has not shifted the dial for UK rate expectations, the market is still expecting the first rate cut to happen either in June or August, with a slightly higher chance of an August rate cut. GBP/USD is also relatively unchanged today. We think that a combination of the low response rate to the labour market data, and the fact that April’s increase in the minimum wage, means that next month’s wage and jobs data could be more useful for the BOE. We also think that CPI data due next week will have a bigger impact on UK rate cut expectations.
Vodafone gets a nod of approval from the market, but there is still some way to go
Vodafone reported its Q1 results on Tuesday. It reported revenues above estimates, however, at EUR 36.72bn, this was 2.5% lower than a year ago. Adjusted earnings fell to EUR 5bn, more than 5% lower than a year ago, which the company attributed to inflation and energy costs. However, there was some good news, the German business, which is one of Vodafone’s top markets returned to growth. European service revenue as a whole beat expectations and was higher by 5.5% beating estimates of 4.04%. Service revenue in the UK was higher by 3.6%, slightly below estimates. The company announced its dividend would be 4cents a share, and it also released upbeat forecasts for its 2025 year, with earnings expected to come in more than double the current rate at EUR 11BN. The market likes this earnings report and Vodafone shares are higher by more than 1% at the UK market open.
