The labour market data and Household Finance Index
Comments from Markit expert, Chris Williamson, said:
“UK unemployment fell to an 11 year low in the third quarter as the economy continued to show resilience in the face of the country’s vote to leave the EU. Some further signs of a slowing in employment growth were evident in the three months to September, but more up to date surveys suggest that employers have since shown hiring to have perked up again in October.
“Employers nevertheless remain very cautious about committing to new hires amid worries about the economic outlook, suggesting employment growth is likely to remain subdued while the uncertainty surrounding Brexit lingers.
“Wage growth also remains disappointingly weak, and households’ gloom about their future finances has hit a three-year high due to worries about the extent that incomes are likely to be squeezed by higher inflation.
Joblessness at 11-year low
“The latest batch of data from the Office for National Statistics showed the unemployment rate dropping to an 11 year low of 4.8% in the three months to September.
“Employment continued to rise, but the rate of job creation showed signs of slowing. The number of people in work rose by 49,000 in the third quarter, but that was the smallest rise since the first three months of the year.
“The slowdown in the employment trend matches business survey data which showed a similar pull-back in hiring in the aftermath of the Brexit vote. However, the same survey data have since shown employment growth to have perked up again in October, albeit remaining subdued compared to earlier in the year. The latest PMI surveys covering services, manufacturing and construction collectively showed the largest rise in employment for six months. The REC recruitment industry survey meanwhile found the number of people placed in permanent jobs by agencies to have grown at the fastest rate for eight months.
“Despite showing signs of improvement, the surveys also reveal that uncertainty about the future continues to restrain hiring. IHS Markit’s survey of UK firms’ expectations for the year ahead found employment intentions to have improved only by the smallest of margins in October compared to the three-year low seen back in June. A reluctance to take on extra staff was generally ascribed to worries about the potential impact of Brexit and rising costs resulting from the pound’s depreciation.
“The message from the surveys is therefore that, while we should expect employment to continue rising modestly in the near-term, firms’ appetite to invest in new staff remains very fragile and will clearly be swayed by the path the government chooses to take in terms of a hard or soft Brexit.
Households grow gloomier on finances amid expected inflation-squeeze
“The latest official data also showed average weekly earnings continuing to rise at an annual rate of just 2.3% in the three months to September. Excluding bonuses, the rate of increase accelerated to a one-year high of 2.4%.
“Separately, the first available indication of household well-being in November pointed to escalating worries about future finances. New survey data highlight how households are struggling to support existing spending due to weak income growth and rising prices, and how this negative trend is widely expected to intensify in coming months.
“IHS Markit’s Household Finance Index (HFI), a survey of 1,500 UK households published today, found the outlook for personal finances over the coming year to be the gloomiest for three years.
“The darker mood stemmed mainly from fears of spending power being eroded by rising prices. The survey’s gauge of expected inflation in the coming year rose to its highest since October 2014.
“Worries about higher interest rates, and therefore borrowing costs, also contributed to the downbeat view of the year ahead. For the first time since June’s Brexit vote, more than half of survey participants (55%) expect the Bank of England to hike interest rates at some point during the next year.
“The proportion of survey respondents expecting the next move from the Bank of England to be a rate cut has meanwhile fallen from 56% in July to just 17% in November.
“Current finances also continued to be squeezed. Although overall spending continued to rise, the upturn was driven by households eating into their savings. The November survey recorded the biggest drop in savings for six months. This need to use savings to support additional spending was in part due to income from employment more or less stagnating.”