The FINANCIAL — The U.K. labor market strengthened in the third quarter with record employment and healthy pay growth, government statisticians said on November 11, but the data is unlikely to pressure the Bank of England to raise interest rates ahead of time, according to Nasdaq.
Britain’s jobless rate stood at 5.3% between July and September, the Office for National Statistics said, compared with the second quarter 5.6%, while the share of the population in employment rose to 73.7%, the highest since records began in 1971. Meanwhile, average weekly wages increased 3% during the same period, due in part to an impressive surge in bonuses.
These figures paint a rosy picture of the British economy, despite data released by the ONS two weeks ago showing a slowdown in growth during the third quarter. Still, they are unlikely to persuade officials at the Bank of England they should raise borrowing costs ahead of what they signaled in their latest policy meeting last week.
While most analysts say better-than-expected U.S. labor market data unveiled last week is set to weigh heavily on Federal Reserve policymakers–who could nudge up interest rates in December for the first time in seven years–the U.K. central bank is unlikely to sing from the same hymn sheet.
BOE officials came out as mostly dovish in their latest Inflation Report, which all but ruled out an early rate rise due to concerns about a weaker global economy. Policymakers had so far shrugged off fears that a slowdown in emerging markets–led by slacking Chinese activity–could hamper the U.K., as British firms sell most of their exports to other western nations. However, BOE Governor Mark Carney recently admitted the central bank is now worried about how much these trading partners could be hit by a frailer China.
In response, investors brought forward how soon they expect the BOE to raise rates from well into 2017 to a date closer to the end of 2016.
To be sure, one of the BOE’s rate-setters, Ian McCafferty, continues to vote for borrowing costs to rise, as he fears faster increases in earnings could be an early sign of a surge in consumer price inflation–which the central bank is committed to keep at 2% in the medium term. But signs that the productivity of the labor force keeps improving are likely to dispel such worries among other officials.
Nevertheless, Wednesday’s jobs report also confirmed jobs in the public sector continue to be cut and currently make up a record-low share of the total people in work–only 17.2% of all people in employment, the lowest since official figures started in 1999–while pay for government employees remains subdued. Efforts to reduce government spending are part of U.K. Treasury chief George Osborne’s pledge to eliminate the public sector budget deficit by 2020, but many economists fear they could end up offsetting private sector gains and hampering the economic recovery.
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