Nomura’s European Economics team, led by George Buckley, notes that stronger UK payrolls and stable unemployment contrast with softer wage data and falling full-time jobs. They argue the UK labour market entered the latest energy shock in a looser state than in 2022, and expect the Bank of England to keep rates on hold while using today’s communication to clarify its reaction function.

BoE seen on hold as wages cool

"In short, we saw some stronger headlines on payrolls, LFS employment and less bad news on unemployment. But at the same time we had weaker earnings, as well as falling full-time employment and vacancies."

"That said, we also expect the Bank of England to exercise extreme caution at midday today and keep rates on hold in response to the energy shock. We and financial markets had previously expected the Bank to cut rates before the Iran conflict. While today’s monetary policy decision is unlikely to surprise, the minutes, policy guidance and MPC member comments will provide a helpful guide at this important juncture to understanding the Bank’s reaction function."

"On balance, we think the news is encouraging with employment holding up and wage growth slowing. The rise in the UK unemployment rate over the past year – the largest among major developed markets – should help cap wage growth, even if surging energy prices end up pushing inflation higher."

"What is important here is that at the starting point of the current energy crisis the labour market was looser, and the economy more fragile, than it was in 2022. We expect it will prove more difficult against this backdrop for employees to bid for higher wages in response to the energy price and inflation shock, and that ultimately the rise in energy bills will play out more as a cost-of-living hit than in second-round effects."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)