UK jobs & wages improve, but it probably won't last - ING

James Knightley, Senior Economist at ING, suggests that the UK labour market data for the three months to June looks good, but we doubt that this will remain the case given the deterioration in business surveys following the Brexit vote.

Key Quotes

“Employment rose 172,000 in the three months to June, ahead of the consensus forecast of 150,000, while average weekly earnings growth picked up to 2.3%YoY from 2.2%. The unemployment rate remained unchanged at 4.9%. This suggests that businesses continued to expand in the build-up to the EU referendum, but our concern is that the surprise outcome of the vote will lead businesses to pull back in coming quarters.

Certainly, business surveys have indicated that activity has weakened (the purchasing managers’ indices, for example) while others (such as the Deloiite’s CFO survey and the BoE’s Agent’s Summary survey) suggest that investment and hiring intentions have been significantly scaled back. Consequently, we expect the pace of job creation to weaken through 2H16 with it probably turning negative as we move into 2017. Brexit uncertainty is not going to fade anytime soon so we unfortunately expect the unemployment rate to rise steadily through 2017. This will reduce the likelihood of any meaningful pick up in wage growth and will intensify the pressure on the government to offer support to the economy as it looks to “reset” fiscal policy later this year.”