UK jobs figures bolster case for interest rate hold but ‘experimental’ unemployment data ‘difficult to trust’, analysts say

The latest UK jobs data has bolstered the case for the Bank of England to hold interest rates on Thursday, according to analysts, as the labour market shows signs of cooling but inflationary pressures remain bedded into the economy.

This morning’s figures from the Office for National Statistics (ONS) showed average wage growth including bonuses fell to 7.2 per cent between August and October, while growth excluding bonuses dropped to 7.3 per cent.

Both numbers came in below economists’ expectations and are down from recent peaks.

However, pay is still rising in real terms as inflation has slowed, and the figures remain well above the government’s two per cent inflation target.

The data comes ahead of the Bank of England’s final Monetary Policy Committee (MPC) meeting of the year on Thursday, where policymakers are expected to hold interest rates at 5.25 per cent for a third time in a row.

Michael Hewson, chief market analyst at CMC Markets, said that “anyone who thinks that this sort of number is likely to prompt an earlier pivot from the Bank of England when it comes to rate policy is kidding themselves”.

“This dip in pay suggests the Bank of England’s previous interest rate decisions are beginning to have the desired effect, and it will likely feel vindicated to continue to hold rates higher for longer as a result,” explained Richard Carter, head of fixed interest research at Quilter

“Though today’s figures suggest another step has been taken in the right direction, the Bank will be keen to see a significant slowdown in wage growth before it begins to contemplate the possibility of cutting interest rates.”

Markets have already priced in rate cuts for next year, with investors betting that inflation will keep cooling and high borrowing costs will dampen economic growth.

“The big question was whether there’d be anything in this latest set of jobs figures to trouble Bank of England rate setters when they meet later this week,” added Danni Hewson, head of financial analysis at AJ Bell.

“The answer is a resounding no, and taking a look at market expectation, another no-change decision looks almost nailed on.”

Following its last meeting in November, the central bank suggested that unemployment would have to go higher than expected to bring down wage growth.

The ONS today estimated that the unemployment rate remained unchanged at 4.2 per cent, in line with expectations, but experts have raised concerns over the reliability of the data.

Falling response rates to its flagship Labour Force Survey have forced the ONS to instead publish “experimental” figures on unemployment levels for the last two months, which makes it more difficult for the Bank to assess how high interest rates are impacting the economy.

“This new data appears very difficult to trust right now, and the ONS has warned against relying on it just yet, but its findings will still make the Bank’s job even harder and potentially give it license to pursue its higher for longer narrative for even longer,” Carter said.

The estimated number of vacancies also dropped for the 17th consecutive month, the longest streak on record, further suggesting that the labour market is cooling.