James Smith, Economist at ING, suggests that the combination of sub-consensus wage and employment growth was not encouraging, and may suggest that uncertainty surrounding the forthcoming referendum is starting to show up in the data. Key Quotes “Today’s UK employment data contained little to get excited about. The headline change in employment averaged just +20k in the 3 months to February, short of the (already fairly low) expectation for 60k, and down from 116k last time around. It is possible that the uncertainty surrounding the forthcoming referendum is starting to weigh on these figures, although this is unlikely to be the sole factor (after all, employment decisions tend to be made a few months prior to hiring). However, as business surveys are starting to suggest that firms are pulling back on hiring decisions, the referendum-related uncertainty may increasingly show up in the employment data over the next few months. More importantly though (at least for the interest rate outlook), the wage data was particularly disappointing. The overall average weekly earnings figure came in well short of expectations, at 1.8% YoY vs 2.3% consensus. This largely reflects lower bonus payments in financial services and when bonuses are stripped out, weekly earnings matched last month’s figure of 2.2% YoY. Over the next couple of months, we expect to see the effect of the new national living wage to appear in the data (the pay increase had to be implemented by April), and is possible that this started to filter through to this month’s reading (the actual level of wages increased by £2 to £469). Looking at the bigger picture however, we remain fairly optimistic on the outlook for wages. As this data demonstrated, the total number of job vacancies is now greater than the number of people claiming unemployment benefits. Ultimately, this labour market tightness should inevitably start to translate into more rapid wage growth over the coming months. Consequently, the combination of faster wage growth and a pickup in inflation (owing to the large depreciation in sterling) later this year will place greater pressure on the Bank of England to raise interest rates in the second half of 2016 (if the UK votes to remain in the EU).” For more information, read our latest forex news.