Bank of England to Monitor Labour Market Revisions Ahead of Interest Rate Decision

Strategic Insights -

The Bank of England is bracing itself for potential revisions to the labour market data, which may reveal a more significant deterioration in the employment landscape than initially thought. Last month, the Office for National Statistics (ONS) reported a drop of 109,000 payrolled employees in May, with analysts predicting a revision to around 50,000. This shift in employment data could influence the Bank's interest rate decision, with Governor Andrew Bailey expressing concern about the "slack" in the labour market. Leading economists at JP Morgan suggest that any decision to cut interest rates will hinge on the ONS's revised employment data for May.

Key Takeaways:

  • The Office for National Statistics (ONS) is set to publish updated jobs data on Thursday, which may reveal a more significant deterioration in the labour market than initially thought.
  • The Bank of England is concerned about the "slack" in the labour market, with Governor Andrew Bailey suggesting that interest rates may need to be cut.
  • Analysts at JP Morgan predict a revision of the employment data from 109,000 to around 50,000, which may influence the Bank's interest rate decision.
  • The Bank of England has relied more heavily on business surveys and research supplied by jobs platforms and the Recruitment and Employment Confederation (REC) due to concerns over the quality of ONS data.
  • The ONS is undergoing structural reforms in response to a recent review by Sir Robert Devereux, which may improve data quality by the end of next year.
  • City forecasters are divided on the number of interest rate cuts the Bank of England will make in the next 12 months, with Capital Economics predicting up to two cuts and Pantheon Macroeconomics suggesting just one.
  • The unemployment rate is expected to edge up to five per cent, triggered by adjustments to employers tax hikes introduced by Chancellor Rachel Reeves.
  • Markets have priced in a low of 3.5 per cent interest rate and improved the likelihood of two cuts taking place this year.

Statistics:

  • The number of payrolled employees in May dropped by 109,000, according to the Office for National Statistics (ONS).
  • Analysts predict a revision to around 50,000.
  • The Bank of England has relied on business surveys and research supplied by jobs platforms and the Recruitment and Employment Confederation (REC) 100% of the time (four times) since January 2020, according to Cityam.
  • The Bank of England's current interest rate is 4.25 per cent.
  • Capital Economics predicts the unemployment rate will edge up to five per cent by the end of next year.
  • Markets have priced in a low of 3.5 per cent interest rate.

Sources:

  • Cityam: https://www.cityam.com/people-and-organizations/jp-morgan/
  • Cityam: https://www.cityam.com/bailey-watching-labour-market-softening-very-closely/
  • Cityam: https://www.cityam.com/london-hiring-plunges-as-rachel-reeves-tax-grab-weighs/
  • Cityam: https://www.cityam.com/unemployment-creeps-as-firms-cut-jobs-as-labour-tax-raid/
  • Cityam: https://www.cityam.com/high-inflation-not-sufficient-to-scupper-bank-of-england-interest-rate-cuts/