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Employment data defies the gloomy headlines

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Britain’s labour market continues to defy the seemingly endless gloomy news headlines about job losses. Just 24 hours after Honda said it would be closing its car plant in Swindon, the Office for National Statistics (ONS) released data showing that there were 167,000 more people in work in the final quarter of 2018 compared to the previous quarter. The employment rate, at 75.8%, remains at a record high, and wage growth continued at a healthy 3.4%, almost double January’s inflation rate of 1.8%. The unemployment rate for the three months to the end of December was 4.0% but dipped below the 4% mark for women for the first time ever. However, this is likely to be because of the increase in the women’s state pension age, which is making more women stay in work for longer. Nevertheless, taken together, the data suggests that the economic uncertainties surrounding Brexit are having less impact on employment decisions than was initially thought, even though business investment has been falling. This apparent contradiction is puzzling many experts, although some have speculated it is easier to reverse a hiring decision than it is to reverse a big investment such as the purchase of industrial machinery.

Separately, this strong wage growth is helping housing affordability improve more quickly than at any time since 2011, according to new analysis. Rapidly rising wages combined with a slump in house price growth is allowing earnings to slowly catch up with house prices, says Rightmove, the property group. Its latest monthly index shows that advertised prices were just 0.2% higher than a year before, the slowest growth since 2009. With wage growth of 3.4%, wages are outstripping house price growth by the biggest margin in eight years, bringing more property within reach of more buyers.

The UK manufacturing sector appears to be holding up relatively well as data this week suggested a rebound in February from the previous month. The Confederation of British Industry’s (CBI) Industrial Trends Survey of 366 manufacturing firms revealed that a positive balance of +6% of companies said their order books were better than normal compared to those saying they were below normal. It is a substantial improvement on the negative -1% balance reported in January. However, commentators are still cautious. Anna Leach, the head of economic intelligence at the CBI, said that “UK manufacturing activity has moderated at the same time as headwinds from Brexit uncertainty and a weaker global trading environment have grown.” Others said that one months’ data did not indicate a trend. The report was released on the same day as the Make UK, a manufacturing body, said a no-deal Brexit would be “catastrophic” for the sector and could see many firms disappear overnight.

In good news for government finances, and appearing to back up the manufacturing survey, the Office for National Statistics said that the UK hit a record public sector surplus for January of £14.9billion. Samuel Tombs of Pantheon Economics said the data suggested the economy had not lost as much momentum as many surveys seemed to imply, posing more questions for analysts to ponder about what is really happening beneath the statistics.

 

Click here to read this week's Market Roundup and Company Focus

Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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