UK Employment won’t convince Carney to raise interest rate

10th June 2014

UK Employment Data – 11/06/14

The UK economy, in technical terms, is roaring and is on course to expand by at least 0.8 per cent in the second quarter, taking UK GDP above its pre-2008 peak.

Despite the Bank of England’s theory that a pick up in productivity would slow job growth, employment is expanding in step with the quickening pace of the UK recovery. March saw a record increase in job creation and the number of people claiming jobless benefits continues to fall. The UK is also not suffering the same participation rate problem as the US, with a consistent increase in people joining the labour market.

However, there is some hidden spare capacity in the UK labour market, which explains the stark increase in the number of self-employed. Of the 722,000 jobs created over the last year, over half were self-employed positions. Record employment gains may hide the sad reality that workers are being forced to set up their own businesses when they can’t find jobs. There is also a high level of part-time workers, accounting for 21 per cent of all job gains in the last year.

The best overall indicator that the declining unemployment rate isn’t all that it seems is weak wage growth. Annual wage growth may be increasing but it is doing so from a low level and barely breaking even over inflation rates.

This is a still an employers’ market with further falls in the unemployment rate and a high level of job creation to be expected, but poor wage growth highlights the weakness of the headline read. The jobs market certainly won’t be on Carney’s list of pros for raising the interest rate.