- A significant rise in private sector regular pay growth in April provided more evidence of the type of inflation persistence that the Monetary Policy Committee (MPC) has said would lead to further rate increases. Therefore, today's data reinforces the EY ITEM Club’s view that the Bank of England will raise Bank Rate to 4.75% at next week’s meeting.
- Labour Force Survey (LFS) data remains difficult to read. Rising unemployment and falling vacancies suggest some loosening of labour market conditions, but employment continues to rise strongly and the single-month outturn for unemployment was much lower. On balance, the EY ITEM Club thinks conditions are slightly looser than H2 2022 but still very tight by historical standards.
Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Labour Force Survey (LFS) data for the three months to April showed the ILO unemployment rate edging up to 3.8%, from 3.7% in the previous three-month period. But at the same time, employment rose by 250,000, with a further fall in inactivity squaring the circle. More broadly, the LFS data remains a mass of contradictions. On a single-month basis, unemployment fell significantly in April. However, on the flip side, vacancies continued to fall in the three months to May. Meanwhile, the overall fall in inactivity masked another increase in the number of people reporting they were inactive due to long-term sickness. The EY ITEM Club interprets the LFS data as indicating that labour market conditions are slightly looser than they were in H2 2022, but still very tight by historical standards.
“The narrative around pay growth was much clearer. Headline (three-month average of the annual rate) private sector regular pay growth increased to 7.6% in April, with the pickup reflecting the impact of the near-10% rise in the national minimum wage that month. The Bank of England expected this measure to slow to 6.3% in Q2 as a whole, but the strength of the April outturn means a large overshoot is now likely. April's inflation outturn had already meant that a June rate rise was highly likely, and today's data merely serves to reinforce that view. The EY ITEM Club expects the MPC to raise Bank Rate to 4.75% at next week’s meeting.”