UK: Strong employment data – ING

James Knightley, chief international economist at ING, points out that the UK jobs report is stunningly strong looking at the headline figures as the employment rose 222,000 in the three months to January, 102,000 more than expected.

Key Quotes

“The unemployment rate dropped to 3.9% – the lowest since February 1975, while wage growth held at 3.4%YoY. With consumer price inflation running at just 1.8%, real household disposable incomes growth looks to be doing very well, helping to support consumer sentiment and spending.”

“This seems at odds with other data that has been suggesting the UK economy is slowing. Why are businesses hiring so aggressively at a time of such economic and political uncertainty? This is a question economists’ have been asking for a long time. Weak productivity is usually cited, but business in Britain must still be seeing healthy demand to have the confidence to hire workers in such numbers.”

“Nonetheless, the details are not universally positive. Vacancies slipped a touch, but admittedly do remain firm, while the number of people claiming unemployment benefit rose to the highest since June 2014.”

“Taking it all together it suggests the UK economy is in better shape than many had been believing. If the UK gets a long term extension (nine to 12 months) to Article 50 in the coming days/weeks, this can perhaps give businesses and households a little more breathing room to relax and spend or invest. As such, the prospect of a BoE rate hike later this year remains pretty strong.”