Promising labour market data ahead of Budget - EY ITEM Club

19 March 2014

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  • Promising labour market data for January
  • Real wage should support household spending later in the year
  • Still little insight into the different views across the MPC

Andrew Goodwin senior economic adviser to the EY ITEM Club, comments on the labour market figures and MPC minutes:

“The labour market figures for January are promising. The single month figures showed a first sub-7% reading since 2009, while employment growth remains solid. Vacancies continue to rise and wage growth is finally starting to accelerate. All in all, it’s looking like a broad-based and sustained labour market recovery.

“With inflation expected to fall further this year, wage growth will soon outpace price rises, and pay packets will go further than before. As households become better off, they will be able to continue to spend without borrowing or eating into the savings, which would be a much healthier dynamic relative to what we saw for much of 2013.

“But the flip side of the sustained strength in employment is the weakness in productivity, which appears to have been flat - at best - in Q4 2013. This reinforces the importance of the Chancellor pursuing pro-investment measures in this afternoon’s Budget.

“Meanwhile, the minutes for March’s MPC meeting told us little we didn’t already know. It was particularly disappointing that we didn’t find out any more about the differences in views on spare capacity. Last week’s Treasury Select Committee hearing certainly suggested that the Committee are not as united on this issue as might be suggested by the minutes.

“There is nothing in the minutes to alter our view that the first rate rise will come in Q3 2015. If anything, the Committee’s highlighting of the continued disinflationary effect of a strong pound, increases our confidence that any rate hike is still some way off. Having said that, with the MPC set to have 3 new members by August, there is a heightened degree of uncertainty surrounding the outlook for monetary policy."

For more information on the 2014 Budget, visit the EY 2014 Budget page.