MNI 5 Things: UK Labour Data To Show Further Strength In July

By Jai Lakhani

     LONDON (MNI) - UK unemployment and earnings data for July are due for

release by the Office for National Statistics (ONS) on Tuesday. Below are five

things worth noting ahead of the release.

     --Analysts Tend To Overestimate July Unemployment: In the last sixteen

years, analysts have tended to slightly overestimate (by an average of 0.02pp)

July unemployment. Four of the six overestimates since 2002 have come in the

last five years, suggesting that this tendency has become more prevalent

recently.

     --Employment Resilience Could Continue Exerting Upward Pressure on

Earnings: The July IHS Markit/REC Report on Jobs showed robust growth in

permanent and temporary placements. Pay growth for both permanent and temporary

staff also remained strong, with the respective indices registering at 60.2 and

59.7, suggesting that labour market tightness continues to place upward pressure

on earnings.

     -- Brexit Deterring Skilled Workers From The UK: The number of EU nationals

working in the UK fell to 2.28mn in Q2 2018, down by 86,000 from a year earlier.

Since the Brexit referendum, y/y declines have been especially sharp, with Q2

marking the largest annual fall since records began in 1997. Skilled worker

shortages have been forcing employers to pay higher salaries to attract talent.

The emigration of skilled EU nationals from the UK is further exacerbating the

problem.

     --Analysts Don't Get Bonus Points In July: Since 2010, analysts have

underestimated July headline earnings by an average of 0.03pp. In contrast, core

earnings have been overestimated by an average of 0.04pp. However, the former is

heavily skewed by 2015 and 2016, when the magnitudes of misses were unusually

large (0.5pp and 0.3pp respectively). Excluding these outliers, the average miss

actually becomes an overestimate of 0.1pp.

     --Public Sector Chasing Down Private Sector Earnings: The gap between

private and public sector earnings has been marked for some time. In May 2015,

the 3M Y/Y private-public earnings wedge hit 3.5pp - the highest since February

2007.

     Despite subsequently narrowing, the wedge has remained elevated (standing

at around 1pp). Since the turn of the year however, it has narrowed more rapidly

as public sector earnings have increased. April's wedge of 0.2pp was the

smallest since August 2014. With private sector earnings struggling to break

through recent highs and public sector salary increases expected to continue

during 2018, the wedge may narrow further.

     However, it should be noted that public sector employment as a share of

total employment since 1999 has averaged 19.9% (in March 2018 the share stood at

just 16.5%). So the impact of rising public sector wages on total wage growth is

limited.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

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