According to Nomura analysts Josie Anderson, George Buckley, and Andrzej Szczepaniak, the latest UK labour data reveals a complex picture for the Bank of England (BoE). Private sector regular pay increased by 0.3% month-on-month in July, surpassing both the upwardly revised 0.45% print in June and Nomura's forecast of 0.2% month-on-month. This pace of wage growth is higher than the 0.2% to 0.25% month-on-month average seen in the two decades leading up to 2019, and is considered a key metric for monitoring potential second-round inflation effects, especially in the context of risks stemming from the Iran war and higher energy prices [1].
On the employment front, the data was less encouraging. Payrolls fell by 26,000, a larger decline than Nomura's forecast of a 10,000 drop. Additionally, there were negative revisions for the previous three months. However, the analysts caution that this payroll series is highly prone to revision, so they advise against placing too much emphasis on a single data point [1].
Given these mixed signals, Nomura expects the BoE to keep rates unchanged at its upcoming meeting, with a likely 6-3 vote in favor of holding rates steady. The analysts note that recent BoE communications suggest the majority of the Monetary Policy Committee (MPC) will not support a rate hike, with only Pill, Greene, and Mann expected to vote for a 25 basis point increase [1].
Looking ahead, the analysts warn that persistent strength in private sector wage growth and rising energy prices could increase the risk of future rate hikes. They emphasize that further strong wage growth prints would strengthen the case for additional tightening, making these data points crucial for policymakers and market participants to monitor closely [1].
CONCLUSION
The latest UK labour data presents a challenge for the Bank of England, with strong wage growth offset by weaker employment figures. While no immediate rate change is expected, ongoing wage momentum and higher energy prices could prompt future hikes, keeping the market's focus on upcoming pay data.