MNI DATA ANALYSIS: UK - Warning Signals from the Labour Market

By Shaily Mittal

     LONDON (MNI) - UK labour market data is starting to give warnings signals

regarding the broader economy:

     -Employment growth has slowed and is surprising negatively against

expectations

     -Surveys point to deteriorating hiring intentions

     -Vacancies are now declining year-on-year...

     -... Pointing to Slower GDP growth

     The UK unemployment rate has been falling steadily since late 2011, with

the latest outturn at a record low of 3.8% in April. The last time unemployment

was this low was 45 years ago, in 1974.

     Much has been made of the slow pace of wage growth post the financial

crisis with the real wage growth being negative until 2015. There have at last

been some recent signs of improvement in the trend of wages, which are starting

to approach pre-financial crisis rates of growth.

     However, other components are now giving warning signals regarding the

underlying health of the labour market and the broader UK economy. In

particular, a declining trend of vacancies, as is now the case, has often been a

leading indicator of deteriorating growth in the UK.

     UK employment has slowed over the past three months and is now running

below the long-term average. The MNI UK Economic Surprise Index also highlights

that the UK has been disappointing against market expectations.

     Declining Vacancies ...

     UK jobs vacancies have been trending down since 2018. It has been widely

assumed that Brexit uncertainty was making firms delay their hiring and

investment decisions. However, the vacancies trend has deteriorated to an extent

which has historically been associated with a slowing economy.

     Vacancies have fallen in each month since the start of the year and May saw

the first year-on-year decline since March 2012. Traditionally, GDP has followed

the trend in job vacancies closely, suggesting the recent downturn doesn't bode

well for the broader UK economy.

     ... Point to Lower GDP

     So far, UK economic growth has been relatively resilient to the uncertainty

caused by Brexit. However, a slower rise in employment and the continuous fall

in vacancies are consistent with slowing output and consequently GDP growth.

     Bleak Outlook ...

     Labour market surveys also provide a bleak outlook for the UK labour

market. While surveys have until recently been highlighting that firms were

unable to find adequately skilled workers, increasingly these surveys are now

showing that many firms no longer see the need to hire amid the uncertainty

around Brexit and an economic slowdown.

     ... Hiring Intentions Hit

     The IHS Markit Business Outlook survey shows that hiring plans in the

manufacturing sector are the least optimistic since October 2012, while capex

intentions are at the lowest since 2011. The July KPMG REC report on Jobs showed

that the rise in staff vacancies grew at the slowest pace since August 2016,

while permanent placements fell at the quickest pace since July 2016.

--MNI London Bureau; tel: +44 203-586-2224; email: shaily.mittal@mni-indicators.com