December’s labour market release has been widely anticipated by economists and politicians alike as it is the first piece of hard labour market data since the furlough scheme expired at the end of September. Despite concerns of a disruptive removal of fiscal support, today’s data shows a fairly smooth impact of the end of the furlough scheme.
The unemployment rate declined from 4.3% to 4.2% in the 3-months up until October, falling well below the BoE’s expectation of a rise in the unemployment rate to 4.5%, while quarterly job gains didn’t moderate by too much although the pace of hiring did slow somewhat.
Meanwhile, PAYE data for November showed that hiring quickly picked up the pace with 257,000 more payrolled employees relative to October. Although it may be likely that some employees continue to work out notice periods, signs from the ONS Business Impact of Covid-19 Survey suggests redundancies remain low. Other indicators, such as job vacancies, continued to rise to record levels, suggesting that momentum in job gains will remain robust, while real wage gains continue to support anecdotal evidence of a tightening labour market. The ONS’ decision to remove the underlying wage measure also suggests that favourable base effects have largely worked their way out of the data, such that the 4.3% rise in core wages is representative of the rate of underlying pay growth. Hours worked rose to 17.6m in the quarter up to October, but still remain some 27.8m below pre-pandemic levels, while the inactivity rate ticked up 0.1 percentage points to 21.2%.
Taken on the whole, today’s jobs report would have done a good job at appeasing most of the Bank of England’s fears heading into December’s meeting and in normal times would have paved the way for a 15bps hike as we expected pre-Omicron.
However, the level of uncertainty posed by the arrival of the variant has hamstrung policymakers and muted the market impact of today’s data release. The pound is little changed following the release of the data against both USD and EUR, while fixed income markets are likely to show a similar theme once they open.
GBPUSD shows limited reaction to today’s positive labour market data as it has little repercussions for Thursday’s BoE meeting
Author: Simon Harvey, FX Market Analyst