UK wage growth slows ahead of BoE update

OVERNIGHT

Asia-Pacific equity markets are mostly up this morning following gains in European and US markets yesterday. Overall moves were relatively modest yesterday and overnight as markets await this week’s raft of economic data and important monetary policy updates in the UK, US and Eurozone. 

UK labour market data showed further evidence of a turnover in employment conditions and a larger than forecast fall in wage growth. The experimental unemployment rate measure was unchanged at 4.2% in October, while the number of payroll employees and job vacancies fell in November. Annual regular pay growth slowed to 7.3% in October from 7.7%. Overall, heading into Thursday’s Bank of England update, policymakers will probably be pleased with signs that labour market pressures are easing and that wage growth is slowing but will be aware that wage gains remain too high to be consistent with meeting the inflation target on a sustainable basis.

THE DAY AHEAD

This afternoon’s US CPI inflation update for November is the last important piece of data ahead of tomorrow’s US Federal Reserve monetary policy announcement. October saw the first fall in annual headline inflation for four months as it moved down to 3.2% from 3.7% mainly reflecting the impact of lower oil prices. Core inflation (excluding food and energy) was also down, albeit more modestly, to 4.0% from 4.1%. The November data are again likely to be impacted by lower oil prices so overall inflation is forecast to fall further to 3.1% but the core rate may hold at 4.0%. This improving inflation picture seems likely to lead the Fed to confirm on Wednesday that interest rates have probably peaked but when they will feel reassured enough to cut rates remains less clear.

The German ZEW survey will provide one of the first indications of Eurozone economic trends in December. However, as a poll of financial analysts it can sometimes give less reliable readings than other surveys such as the PMIs due on Friday. Last month the current conditions index rose    for the first time since April, while expectations rose for the fourth month in a row. However, both and in particular the former remain low by historic standards. We forecast a further modest rise in both measures for December.

Early Wednesday UK GDP data for October are expected to show a small monthly fall by 0.1%. That is forecast to comprise of a fall in industrial production, no change in services output and a modest rise in construction. Overall, the big picture for Q4 is that UK economic activity continues to more or less stagnate.  

MARKETS

UK and US bond yields edged up yesterday, although US yields have fallen back overnight as markets await the monetary policy announcements due later in the week. In currency markets sterling has slipped slightly this morning following the labour market report but is still close to recent highs particularly versus the euro.