UK labour market cooling, hawkish MPC off track



Recent posts on UK monetary statistics noted that real narrow money holdings of private non-financial corporations (PNFCs) were contracting, suggesting a faster decline in business investment and weaker labour demand. Yesterday’s labour market report confirms that demand for workers is softening.

The number of employees in employment (three-month moving average) fell in March and was unchanged from December. Year-on-year growth eased to 0.6%, the weakest since December 2016.

The March decline was signalled by a January peak in the stock of vacancies (also three-month moving average), which fell further in April – see first chart.

Softer labour demand, along with a fall in consumer price inflation from 3.0% in January 2018 to 1.9% in March, may already be feeding through to a wages slowdown: annual growth of private sector regular pay fell to a six-month low in March – second chart.

Annual growth of an expanded non-financial broad money measure* eased further to 2.5% in March, the lowest since 2011, signalling a slowdown in nominal GDP and contradicting the MPC’s claim of medium-term upside risk to the 2% inflation target – third chart. The next move in UK rates is likely to be down not up.

*”Non-financial M4++” = M4 holdings and foreign currency UK deposits of household sector and PNFCs plus National Savings plus estimated stock of retail-held UK mutual funds (growth of latter based on flows, i.e. excludes valuation changes).

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