UK June Employment Data: A Signal For The BOE

There is a lot riding on tomorrow’s employment data release from the UK.

Over the weekend, BOE Governor Bailey reiterated that the bank would remain accommodative until there is a significant improvement in the employment numbers. The consensus is that we won’t be getting that just yet.

Meanwhile, also over the weekend, there was a report from The Economist suggesting that the BOE was being too optimistic about the decline in inflation. A survey of economists done by the magazine showed that they expected inflation to remain at 4.0% well into next year.

However, part of that was due to an increasing number of economists believing that the BOE won’t take action to control inflation for some time.

Where things stand on tightening
The annual Jackson Hole Symposium will happen this month, which is usually when the “big three” central banks get together to talk policy.

There was quite a bit of speculation that it would be an opportunity for the Fed to announce that they would begin their taper later in the year. This would also signal that the main central banks are in agreement that it would be time to “normalize” policy.

However, it emerged over the weekend that neither Governor Bailey nor President Lagarde will participate in the Symposium.

This substantially downgraded not only the expectation that the Fed would announce the start of a taper, but that the other central banks would change policy in the near term.

It’s all down to employment
The BOE’s last meeting showed just one member’s willingness to end the asset purchasing program. This outcome was less than analysts expected.

That said, the other members affirmed the general view that employment figures were more important than inflation. Most comments about inflation from the BOE insist that it is transitory.

As long as the “transitory” part is in the rhetoric, it’s pretty safe to assume that inflation isn’t their primary concern. Therefore, this implies that employment is their main focus, at least for now.

So far, the UK has only recovered about a third of the jobs lost during the pandemic. The Claimant Count rate remains at a comparable level to the aftermath of the subprime crisis.

So, even if we get really good numbers in terms of job creation, it still might not be enough to persuade the BOE. And of course, if there is a miss of expectations, then the BOE could keep their asset purchasing program even after September.

What we are looking for
Economists expect the ILO unemployment rate to remain at 4.8%, which on the surface doesn’t look so bad.

But we have to remember that it is a rolling 3-month average. This means that March is rolling off, and June is coming into the average. If the unemployment rate remains the same, then June’s data is on par with that of March, when there were still lockdowns.

The potential bright spot is the Claimant Count.

In fact, if this figure exceeds the prior month’s 114.8K, it could be a sign that employers are adding jobs. If the Claimant Count drops while the unemployment rate remains generally flat, it means that more people are coming back to work.

So we might want to focus more on the evolution of the Claimant Count, to get a sense of where the BOE stands.

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