Real earnings growth is firming, as the labour market remains robust

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest labour market data:

  • Employment growth remains strong. The employment rate was 76.1% in the three months to February, the joint-highest estimate since comparable estimates began in 1971.
  • Unemployment continues to fall. The rate was 3.9% in the three months to February, the lowest since the three months to January 1975.
  • The inactivity rate was 20.7% in the three months to February, the joint-lowest estimate since comparable estimates began in 1971.
  • Vacancies were 852,000 in 2019Q1, at near-record levels.
  • Analysis shows considerable differences in employment rates, unemployment rates and in activity rates between the regions/countries of the UK. There are also considerable differences in the relative size of the public sector and in productivity levels. London has the lowest employment proportion in the public sector and the highest productivity performance.
  • Net immigration growth continues to moderate on a trend basis.
  • Nominal earnings growth is picking up and, combined with moderate inflation rates, real earnings growth is also firming.

Concerning other UK data:

  • Retail sales rose a firmer-than-expected 1.6% (QOQ) in 2019Q1, possibly boosted by good weather in March.
  • CPI inflation was unchanged at 1.9% (YOY) in March, whilst PPI output inflation was also unchanged and PPI input inflation moderated. But oil prices have risen since the beginning of the year and, given international tensions, could rise further, which could increase inflationary pressures.
  • The housing market is very subdued, if not stagnant.
  • Public Sector Net Borrowing was £24.7bn (1.2% of GDP) in FY2018, the lowest for 17 years.

Ruth Lea said, “The economy remains remarkably resilient, with a strong labour market and higher earnings growth. Moreover, inflationary pressures remain muted, though higher oil prices are of concern. The Bank’s Monetary Policy Committee meets this week, but there few, if any, expectations of changed monetary policy. The Bank’s May Inflation Report is not expected to contain any surprises.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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