UK Datanote: U.K. Labour Market Data, September/October 2022

• In one line: Wage growth is near its peak. 

Samuel Tombs (UK Economist)U.K.

9 Nov 2022 UK Monitor Construction Output will Fall Twice as Sharply as GDP Next Year

• The construction sector continued to recover in Q3, as supply constraints and labour shortages eased...
• ...But we doubt it will defy gravity for long, given the surge in borrowing costs and the looming fiscal squeeze.
• Given the pro-cyclical nature of construction output, we expect it to fall by 3% in 2023, twice as much as GDP.

Gabriella DickensU.K.

26 Oct 2022 UK Monitor Don't Take Comfort from the Continued Stability of Labour Market Indicators

• October’s business survey, vacancy and redundancy data are all consistent with a soft landing, for now.
• The outlook for a sharp rise in firms’ borrowing costs, however, points to painful job losses next year.
• The National Living Wage is on course to rise sharply in 2023, potentially compounding the job cuts ahead.

Samuel Tombs (UK Economist)U.K.

12 Oct 2022 UK Monitor The Labour Market Won't Remain Tight for Much Longer

• Employment was broadly flat in Q3, but the recent jump in firms' borrowing costs signals a big fall ahead.
• Long-term sickness looks set to rise further, but government policies likely will boost the workforce in 2023.
• We expect the unemployment rate to peak at about 5.5%, easily high enough to subdue wage growth.

Samuel Tombs (UK Economist)U.K.

UK Datanote: U.K. Labour Market Data, August/September 2022

• In one line: Employment not in free fall, yet.

Samuel Tombs (UK Economist)U.K.

10 Oct 2022 UK Monitor August GDP and Labour Market Data to Point to Stagnation

• We look for a small 0.1% month-to-month rise in GDP
  in August; that’s probably the last rise for this year.
• The single-month measure of employment fell in June and July, but surveys signal modest growth in August.
• Recent wage indicators have painted a mixed picture; expect year-over-year growth to rise only modestly.

Samuel Tombs (UK Economist)U.K.

26 Sept 2022 UK Monitor Mini-Budget Measures Won't Revitalise the Economy Next Year

• Tax cuts which disproportionately benefit the top 1% of earners will do little to boost demand.
• Most households are worse off, because the associated depreciation of sterling will raise the price level by 1.5%.
• Mr. Kwarteng likely will impose tough spending limits in the Budget, to try to reverse the jump in gilt yields. 

Samuel Tombs (UK Economist)U.K.

23 Sept 2022 UK Monitor MPC Likely to Stick to Another 50bp Hike in November, Despite Tax Cuts

• The improved near-term outlook for CPI inflation has left the MPC less anxious about second-round effects.
• The MPC is awaiting more details on fiscal policy; a 75bp hike in November can't be ruled out...
• ...But the proposed tax cuts will do little to boost GDP, and spending might be cut; we still expect a 50bp hike.

Samuel Tombs (UK Economist)U.K.

21 Sept 2022 UK Monitor Mortgage Refinancing Set to Deliver a 1pp hit to Disposable Incomes in 2023

• The effective interest rate for all mortgages has risen only slowly to date, but now looks set to soar...
• ...As a rising number of borrowers refinance, and as lenders respond to the further jump in risk-free rates.
• Expect a 1pp disposable income hit in 2023 if Bank Rate tops 4%, or a 0.7pp drag if Bank Rate tracks our forecast.

Samuel Tombs (UK Economist)U.K.

14 Sept 2022 UK Monitor Wage Growth Remains too High for the MPC, But that will Change in 2023

• Employment has stopped rising, but labour market slack hasn't accumulated, due to increasing inactivity.
• We expect labour demand to remain flat but the workforce to grow, as immigration and participation recover.
• For now, wage growth is too hot for the MPC, but building slack and falling CPI inflation will slow it in 2023.

Samuel Tombs (UK Economist)U.K.

UK Datanote: U.K. Labour Market Data, July/August 2022

• In one line: Grim; the recovery in employment has petered out, but slack hasn’t built yet.

Samuel Tombs (UK Economist)U.K.

12 Sept 2022 UK Monitor Labour Market and Retail Sales Data to Persuade the MPC to be Cautious

• Business surveys and vacancy data point to another negligible rise in payroll employees in August.
• Wage growth likely remained slightly too strong for the MPC, but probably didn't gain more momentum.
• BRC data point to a below-consensus fall in retail sales in August; the MPC won't up the hiking pace.

Samuel Tombs (UK Economist)U.K.

9 Sept 2022 UK Monitor A Recession Now Looks Unlikely, following Bold Energy Price Action

• The average household will spend less on energy over the next six months than during the last six.
• So a winter recession now looks unlikely, and the MPC can return to focussing on core CPI inflation.
• Fiscal policy will stabilise demand, not lift it; job market slack still looks set to emerge, limiting rate hikes.

Samuel Tombs (UK Economist)U.K.

6 Sept 2022 UK Monitor How will Energy Price Interventions Impact the Inflation Outlook?

• Ms. Truss has been tight-lipped about her plans, but a
  trade body plan to freeze prices is gaining traction.
• If implemented, CPI inflation will return to the 2% target in 2023, easing the pressure for further big rate hikes.
• Firms need help too, though we think Ms. Truss will cut business rates and provide grants, not reduce VAT.

Samuel Tombs (UK Economist)U.K.

5 Sept 2022 UK Monitor Forecast Review: Lifting Our Bank Rate Forecast, Despite a Looming Recession

• The jump in energy prices in August means we now expect CPI inflation to peak just above 16% in April 2023.
• Wage and inflation expectations have risen too, so we now see 50bp rate hikes in September and November.
• Extra fiscal support likely won't stop a consumer down- turn; an early 2023 recession has become our base case.

Gabriella DickensU.K.

2 Sept 2022 UK Monitor The Inventory of Unsold Properties will Rise Over the Next Year

• Low unemployment means few homeowners will be forced to sell up, and construction already is declining.
• Landlords, however, likely will struggle to raise rents in line with the jump in their mortgage payments.
• We expect the stock of homes on the market, therefore, to rise over the next year, weighing on house prices.

Gabriella DickensU.K.

1 Sept 2022 UK Monitor Capex will Continue to Recover, Despite the Risk of Recession

• Business investment rose again in Q2, as key uncertainties faded and supply constraints began to ease.
• We expect a further rebound in H2; balance sheets are strong and investment intentions still are high.
• But we doubt capex will return to its pre-Brexit share of GDP; the U.K is a less desirable place to invest.

Gabriella DickensU.K.

30 Aug 2022 UK Monitor CPI Inflation to Top 17% in January, if Energy Prices Now Hold Steady

• Futures prices indicate that the energy price cap will rise by a further 52% in January and 38% in April...
• ...Implying that energy will directly boost the headline rate of CPI inflation early next year by 11pp.
• Markets' bets on even faster rate hikes look misplaced; higher energy prices mean more labour market slack.

Samuel Tombs (UK Economist)U.K.

26 Aug 2022 UK Monitor It's Not all Bad News on the Inflation Front

We expect Ofgem to announce today that the default tariff cap will increase by 80% in October.

This will boost CPI inflation by 4pp, assuming the ONS treats the government's grant as a fiscal transfer.

Core goods inflation, however, is set to fall sharply this winter; manufacturers and retailers have excess stock.

Samuel Tombs (UK Economist)U.K.

24 Aug 2022 UK Monitor Flash PMIs Suggest the Economy is Stagnant at Best

August’s PMIs suggest the recovery has petered out, with the manufacturing sector heading into recession.

Employment growth also has come off the boil, while price pressures mostly have continued to ease.

All this suggests the MPC have room to act with caution; a 50bp hike is not the done deal assumed by markets.

Samuel Tombs (UK Economist)U.K.