Archive

UK: Mixed Messages On Labour Market

• Most narratives can find some support in the latest labour market report, preserving uncertainty that should keep the BoE on hold at least until some clarity emerges.
• Unemployment has increased (LFS) or stabilised (payrolls), while pay is shockingly resurgent (inc-bonuses), slowing as expected (ex-bonus) or stagnating (private pay).
• Weakness isn’t as clear as the consensus and press sometimes make out, but concerns aren’t invalidated. We still expect resilience to preserve excess inflation hawkishly.

By Philip Rush

UK: Poor Productivity Paradigms

• The OBR looks likely to trim its productivity trend assumption to 1%, which would still be a bullish break from the current stagnation. Trends rarely break outside recessions.
• High taxes are squeezing the most productive and being transferred to the inactive. It should not be surprising that the UK’s political choices have stalled productivity.
• We see no reason to think the UK will pull off an internationally exceptional jobs-light boom from here. Ongoing stagnation would extend the UK’s rule for fiscal slippage.

By Philip Rush

HEM: Oct-25 Views & Challenges

• Hawkish inflation and policy rate pricing shifts toward our UK/EA view did not stop US rates frontloading more cuts.
• We still see markets overpricing easing, with UK inflation expectations stuck above target, and neutral rates high.
• A break in activity data, especially unemployment, and underlying price/wage inflation, would threaten our view.

EA: Rounding Jobs For Migrants

• A surprise rise in EA unemployment reflects rounding rather than alarming weakness, with labour supply and demand still surging. Finland’s woes are more idiosyncratic.
• Supply has trended much faster post-pandemic, sustaining demand at its old trend without extreme capacity constraints. Migration has more than accounted for the rise.
• Ukrainians are dominating the flow and complicating the read through to disinflationary spare capacity. Wage growth is an even more critical signal when supply is uncertain.

By Philip Rush