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UK: Getting tighter - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 19, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    James Knightley, Senior Economist at ING, suggests that in the UK there are more job vacancies than people claiming unemployment benefits, which suggest that wage pressures should build.

    Key Quotes

    “The UK labour market has been very successful in recent years with employment having risen by 2.35m since the depths of the recession in 2010. In fact, there are now more job vacancies in the UK than there are people claiming unemployment benefits, which suggest that the labour market is incredibly tight.

    At the moment there is little sign of significant wage pressures, but with the national living wage still to be reflected in the numbers (it had to be implemented by April), we expect average earnings to start rising more quickly in the months ahead. That said, with headline inflation barely above zero there seems little need for workers to push aggressively for sharply higher pay – 2% real wage growth is pretty good by historical standards.

    However, consumer price inflation is likely to move higher as the 15% plunge in sterling pushes up imported costs and rising petrol prices feed into the index.

    There is a clear near term obstacle to this view in that the uncertainty relating to the UK’s referendum on its membership of the European Union could weaken the jobs market.

    If the UK votes to stay in the EU then we would suggest that employment growth will rebound from its current soft patch, but should the UK choose to leave then there is a clear risk that delayed hiring becomes cancelled hiring as confidence takes a tumble.

    Consequently, interest rates could go higher quite soon if the UK votes to stay an EU member, but we are likely to see rate cuts if the UK votes to leave. Given this theme is dominating market sentiment, even a really strong outcome from tomorrow’s jobs report is unlikely to have a significant impact on market pricing.”
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