- Without the Omicron variant, today’s strong labour market report could easily have been enough to rubber stamp a December rate increase. But the EY ITEM Club thinks the significant degree of uncertainty around Omicron suggests the Bank of England won’t move on Thursday.
- The first Labour Force Survey data for the post-furlough period offered further evidence that the end of the scheme was benign. But the flip side is that the closure of the scheme did little to halt the increasing numbers of unfilled vacancies.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Given that more than one million jobs were furloughed when the Coronavirus Job Retention Scheme finished at the end of September, the extent to which these workers were able to keep their jobs was always going to be key to the near-term labour market outlook. The single-month Labour Force Survey data for October backed the timelier HMRC data in suggesting that the end of the scheme was benign – the unemployment rate was just 4.2% in October, the same as the more reliable three-month average for the August to October period.
“Most other aspects of today’s release pointed to a strong labour market. HMRC data reported another month of robust jobs growth in November. Meanwhile, the end of the furlough scheme did little to halt rising numbers of unfilled vacancies.
“All other things being equal, today’s release would probably have been enough to give the green light to a December interest rate increase. But the uncertainty surrounding the Omicron variant means that the EY ITEM Club expects the MPC to keep policy unchanged while they seek more information.
“It’s possible that Omicron could temporarily bring the strong run of labour market data to a halt over the next few months, particularly if consumers become more reluctant to engage in social consumption activities. With the furlough scheme no longer in place, and the Government yet to offer any new support to firms in these sectors, there could be negative implications for jobs if spending weakens.”