“Today’s data are unlikely to unlock an interest rate cut by the Bank of England on Thursday, with wage growth increasing to 5.2%. Nonetheless, we expect labour market activity to ease over the coming year as employers look to get ahead of the upcoming rise in National Insurance Contributions, which should put further downward pressure on wage growth and employment. This will allow the MPC to continue to gradually ease interest rates early next year.
Unemployment remained fairly low at 4.3% in October, however we expect unemployment to pick up slightly next year. The latest KPMG/REC survey shows hiring intentions have weakened significantly in the aftermath of the Budget. An increase in the National Living Wage in April is also set to raise the cost of employment for businesses. Sectors employing a higher share of low wage workers, such as retail and hospitality are likely to be disproportionately impacted.
The reweighted Labour Force Survey data suggests more workers have entered the labour market than previously estimated. Net migration has been a key source of labour supply growth since the pandemic, partially offsetting higher levels of inactivity due to long-term ill health. However, with net migration expected to fall over the coming years, focus will need to turn to increasing the working age population through getting people back to work.”
