Fresh jobs and wages data for the UK will be closely scrutinised by the Bank of England and the City for evidence that the surprise jump in unemployment reported last month was a blip.
With the economy growing strongly in the second quarter, The Guardian reports that latest figures for the labour market are expected to show a modest improvement in employment and annual earnings growth running close to 3 per cent.
Financial markets were taken aback when the Office for National Statistics reported that unemployment on the internationally agreed measure stood at 1,853,000 in the three months ending in May – 15,000 higher than it had been in the quarter ending in February.
The narrower yardstick of unemployment, the claimant count for June, showed a 7,000 increase to 804,200, the first monthly jump since October 2012.
Some economists believe that the weaker labour market data is evidence of tougher times ahead. Danny Blanchflower, a former member of the Bank of England’s monetary policy committee and a labour market expert, said: “Oil prices are falling. Commodity prices are falling. Chinese exports are falling. In the UK, the last labour market data showed unemployment and inactivity both up.”
Blanchflower said the fact that only one MPC member, Ian McCafferty, voted for rates to increase this month suggested that the Bank also suspected the economy was on the turn.
But Capital Economics said they thought last month’s rise was a one-off: “After rising in May, we suspect that the headline (three-month average) unemployment rate held steady at 5.6 per cent in June. Nonetheless, the still-strong business surveys suggest that the unemployment rate is likely to fall further soon.”
Howard Archer, UK economist at IHS Global Insight also said the unemployment setback was likely to be temporary. “We suspect that this relapse was due to a combination of factors, including the slowdown in GDP growth in the first quarter, recent business uncertainty first of all relating to May’s general election and then to the heightened Greek crisis.
“It may also have been the consequence of some companies increasingly struggling to get the qualified/skilled workers that they need.”
In its inflation report last week, the Bank said the scope for further sharp falls in unemployment were limited and it expected earnings growth to pick up.
“Wage growth is expected to continue to strengthen in the near term, reflecting the past narrowing in labour market slack and the pick up in productivity growth – although four-quarter wage growth is likely to weaken in the fourth quarter of 2015 due to strong bonuses in the fourth quarter of 2014.
“As the impact of temporary factors currently weighing on wage growth, such as subdued labour turnover, diminish, wage growth is likely to outpace productivity growth further. This will gradually raise unit labour costs, consistent with inflation returning to the monetary policy committee’s 2 per cent inflation target.”
The latest jobs report by the Recruitment and Employment Confederation and KPMG found that permanent staff placements continued to rise in July, “but the rate of growth eased further from April’s recent high to the slowest in over two years”.
It added: “Similarly, temporary/contract staff billings increased at the least marked pace in 25 months.”
