Plenty of life in labour market will be reflected in future wage growth recovery - EY ITEM Club

19 February 2014

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  • Uptick in unemployment likely to be a blip
  • The minutes barely reflect a committee in transition
  • There is nothing to change our view that the first rate hike will come in Q3 2015

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

“The small uptick in unemployment is not a game-changer, with rising vacancies and employment growth suggesting there is still plenty of life in the labour market. The improvement in the jobs situation continues to contrast sharply against the slow pace of wage growth, which underscores the continued need for a supportive monetary stance.

“We expect the unemployment rate to resume its descent in the coming months, albeit at a more gradual pace. And an increasingly tight labour market should be reflected in wage growth – December’s year-on-year pickup in wages offers some hope that this is beginning to happen. This is also supported by inflation slipping back.

“The minutes released today are not obviously those of a policy committee in transition. One would have thought that such a major change of direction would warrant more than one paragraph.

“Furthermore, the lack of vote is inconsistent with their behaviour in August, while there is no insight into the range of views on the degree of slack in the economy. Hopefully the next set of minutes will offer a greater insight. There is nothing in either of today’s releases to change our view that the first rate rise is likely to come in Q3 2015.”