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Growth in employment in the three months to June undershot the consensus by the most in nearly two years.
The workforce, by contrast, is finally picking up, assisted by a recovery in immigration, which will be maintained.
Vacancy and payroll employee data indicate labour demand is stagnating; unemployment will rise further.
PAYE data, vacancy figures and business surveys all suggest employment growth slowed in June and July.
Labour supply, however, is picking up; the unemployment rate likely was marginally higher in Q2 than in Q1.
Wages likely continued to rise in June at a rate inconsistent with the inflation target, but probably didn't speed up.
Dave Ramsden is the first MPC member to admit rates might need to be cut "quite quickly" in the medium term.
The cuts currently priced-in by markets from late H2 2023 aren't big enough to lower households' interest bill.
But CPI inflation won't be near the target until Q4 2023; pre-election fiscal stimulus will limit the scope for easing.
PMI data for July show that the recovery in GDP has nearly ground to a halt and inventory is piling up.
Employment growth slowed to a 15-month low, while the pace of input and output price rises eased materially.
On balance, the latest data imply the MPC won't act "forcefully"; market pricing for August is still too high.
The headline rate of CPI inflation topped the MPC forecast in June, due to higher motor fuel and food prices.
But the core rate fell, undershooting its forecast, as retailers struggled to pass on higher producer prices.
Core CPI inflation will fall sharply early next year, when recent falls in commodity prices will feed through.
The Governor emphasised at Mansion House that the drop in the workforce has been a key driver of rate rises.
So its 0.8% 3m/3m rise in May, the largest since 1984, should ensure the MPC sticks to a 25bp hike in August.
The workforce has scope to rebound further, while vacancy and survey data imply job growth will slow.
We think employment grew at a steady 0.5% threemonth-on-three-month pace in May.
But expect even faster growth in the workforce to mean that the unemployment rate edged up again.
Surveys suggest wage growth had no more momentum in May than in prior months.
June's Decision Maker Panel Survey shows firms' expectations for price and wage rises have increased.
But households' inflation expectations have fallen back, and more importantly, commodity prices have plunged.
Core goods CPI inflation will turn negative next year, helping to return the headline rate to 2% by late 2023.
The MPC and consensus still aren't downbeat enough on Q2 GDP; we look for a 0.7% quarter-on-quarter drop.
CPI inflation now looks set to approach 11% in October, driven by further huge rises in food and energy prices...
...But wage growth and inflation expectations haven’t risen, while producer price inflation now is set to plunge.
Core CPI inflation declined to 5.9% in May, from 6.2% in April, and will fall further in June.
Retailers are shrinking their margins, rather than passing on surging producer prices fully to consumers.
Faltering demand will constrain future core price rises, enabling the MPC to stop its hiking cycle this year.
Year-over-year growth in private-sector wages slowed to 4.7% in April, slightly below the MPC’s 4.8% forecast.
The job market no longer is tightening, as the workforce recovers and growth in employment starts to slow.
We still expect the workforce to recover further, anchoring wage growth and easing the pressure for rate hikes.
The labour market currently is very tight, largely due to a sharp decline in the size of the workforce.
We think, however, that around half of that decline will reverse by end-2023, keeping a lid on wage pressures.
This is one reason why we think the MPC will hike Bank Rate by less than markets expect.
Mr. Sunak's measures will boost households' nominal incomes in H2 by 2% and nominal GDP by about 0.7%.
The medium-term impact, however, will be small, and the package is so timely the MPC can't feasibly offset it.
So the outlook for Bank Rate hasn't changed radically; we now expect it to rise to 1.50%, not 1.25%, this year.
The £15B support package is hefty, timely and targeted; it offsets most of October’s £24B energy bill rise.
The extra cash likely will lift GDP by 0.7% in the second half of this year; this matters for monetary policy.
Strikes will become more common over the coming months, but won’t tip the balance towards recession.
The LFS measure of employment was essentially unchanged in Q1, despite the strength implied by surveys.
But the unemployment rate probably fell to a 47-year low of 3.7%, due to a contraction in the workforce.
Headline wage growth likely edged up, but remained well below CPI inflation; this gap will persist.
The near-term outlook for households' real disposable income looks bleak; we still expect GDP to drop in Q2.
A recession, however, isn't our base case; people have ample scope to draw on savings and to borrow more.
We now Bank Rate to top out at 1.25% this year, not 1.00%, but still think markets have lost the plot.
Employment started to rise again in the three months to February, having fallen in December and January.
The workforce should start to recover this year, reflecting a decline in inactivity and a rise in immigration.
Alongside slower labour demand growth this should mean wages continue to rise more slowly than prices.
We look for a three-month-on-three-month rise in employment of about 30K in February.
Another cohort with a high employment rate left the sample, but surveys signal solid underlying momentum.
The PAYE measure of median pay and settlements data, however, suggest wage growth stayed subdued.
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