The UK jobless rate is expected to fall further, while average earnings growth is estimated to continue rising steadily.
The unemployment rate in Britain has been falling sharply over the last two years, from 8.4% in January 2012 down to 6.0% in the quarter to September this year.
In October, the jobless rate is estimated to have dropped further down to 5.9% while wage growth is expected to continue rising steadily but well below the pre-crisis levels. Average weekly earnings including and excluding bonuses are expected to have increased 1.2% and 1.6% respectively, both readings above the previous quarter's levels.
The Office for National Statistics (ONS) is releasing fresh data on Wednesday, 9:30 AM GMT, alongside the publication of the Bank of Enfland's (BoE) MPC minutes.
In Its November Inflation Report forecasts, the BoE revised its outlook for the jobless rate down to 5.7% in the final quarter of this year, which is less than 5.9% it had estimated in August.
Jobless claims, a narrower and less distant gauge tracking labor market activity, is expected to have declined by 20,000, bringing the claimant-count rate down to 2.7%.
According to the Recruitment and Employment Confederation (REC) and KPMG 'Report on Jobs', the rate of growth of new permanent placements decelerated to an 18-month low in November, while starting salaries rose further, with the rate of growth quickening from October’s eight-month low.
Tightening labor market creates rift at MPC
Even though the jobless rate on its own has been dropped out as the primary variable for deciding on the future path of the UK monetary policy, labor market data and its impact on inflation remain significant factors within policy decision process.
The rapidly tightening labor market has prompted two BoE policymakers, Ian MCCafferty and Martin Weale, to vote for the rate hike from August through November.
McCafferty and Weale, both external members of the Monetary Policy Committee (MPC), argue that “the continued fall in the unemployment rate was consistent with the rapid absorption of [labor market] slack and, even if the rate at which unemployment was falling were to ease markedly, it could nonetheless reach its estimated medium-term equilibrium level by the middle of 2015.”
Both policymakers also believe wage growth will push up on inflation earlier and harder than the BoE's central view suggests. The seven member majority at the MPC, which includes Governor Mark Carney, has been arguing that the “outlook for inflation in the medium term justified maintaining the current stance of monetary policy.”
Wages to pick up
Specifically on wages, the latest MPC minutes showed that the rate-setting committee's view on both the upside and downside risks to the outlook for wages was broadly balanced.
First, that “wage growth could remain subdued if slack were greater than assumed or if a period of low inflation itself moderated wage growth,” or second, “it [wage growth] could pick up more sharply than anticipated if there were less slack, if it were absorbed more quickly than assumed, or if confidence in the recovery meant that pay pressures started to feed through more sharply than expected into wages.”
In its updated forecast published this week, the Office for Budgetary Responsibility (OBR) estimates average earnings growth of 1.8% in 2014; 2% in 2015; 3.1% in 2016 and 3.9% in 2017.
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