The recent UK labour market report highlights a gradual weakening with unemployment increasing to 4.4%, the highest since May 2024. Despite the government's substantial investment to modernize labour statistics, the data is fraught with uncertainty due to low response rates, making it less reliable for policymakers. Meanwhile, earnings growth has surged to 5.6%, significantly influenced by last summer's public sector pay rise and a favorable comparison to last year's figures. However, this growth is inconsistent with the Bank of England's 2% inflation goal. A Bank Rate cut is anticipated, with forecasts indicating continued easing in the coming months.
The latest UK labour market report indicates gradual weakness, with rising unemployment, while reaffirming a stagflationary backdrop and unlikely changes to Bank of England's policy.
Despite a £40 million investment to enhance labour survey accuracy, the data faces significant limitations due to low survey response rates.
Earnings growth at 5.6% YoY suggests potential upward pressure on inflation, further complicating the Bank of England's goal to maintain a 2% inflation target.
A 25bp Bank Rate cut is expected in early-February, as recent economic data aligns with a scenario necessitating more gradual easing by the MPC.
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