Trial now

(F2) Holding Onto Most Of Its Gains


Early Trade, 2Y Put Sale


Issuers Cuing Up, Dec'21 to Eclipse Dec'20


(H2) Monitoring Support


Decent Midcurve Put Fly Buying

By David Robinson
     LONDON (MNI) - Bank of England Monetary Policy Committee members see
increasing evidence to support their assumption that earnings growth will
accelerate next year, so long as the economy is not derailed by Brexit.
     In evidence to the Treasury Committee Tuesday, Governor Mark Carney and his
MPC colleagues highlighted the tightness of the labour market, skills shortages
and more rapid jobs churn as factors bolstering pay growth. Brexit is set to
fuel volatility near term but the pay outlook is rosier.
     As MNI has highlighted, one factor on which the MPC places weight is jobs
churn, which has rebounded to near pre-financial crisis levels. The accelerated
job hopping is putting pressure on employers to respond by raising pay for
existing workers in order to retain them.
     In recent years job churn has been subdued and pay growth for those
sticking in their current jobs has tended to be weak as "employers haven't felt
the need to pay up to retain workers," BOE Chief Economist Andy Haldane said.
     "Over the last six-to-twelve months we have seen that picture altering.
Such has been the tightness of the labour market that companies have felt the
need to up pay for those existing workers just to retain them, given skill
shortages," Haldane said.
     In its November Inflation Report the MPC conditioned its growth and
inflation projections on the assumption average weekly earnings growth would
rise from 2.75% in 2018 to 3.25% in 2019.
     Even Deputy Governor Jon Cunliffe, who has warned that labour market slack
may be greater than assumed, sees signs of pay growth firming.
     Earnings growth struggled had previously struggled to stay above 2.5% but
Cunliffe said that job-to-job flows and other data "all suggest that there is a
firming there" in pay growth.
     "Our forecast has pay moving into the threes next year so this is evidence
that would support the forecast," he said.
     The MPC members were dismissive of the view that the headline-grabbing fall
in the number of EU nationals in work in the UK -- down 132,000 in the year to
Jul-Sep in the biggest decline on record -- was another factor adding to upward
pressure on pay.
     Reams of research highlight how little impact net migration has on
earnings, primarily because immigration impacts both supply and demand, often in
roughly offsetting amounts.
     A decline in net migration "would reduce supply and demand equally and by
extension it doesn't have a great implication for monetary policy," MPC member
Michael Saunders said.
     "The reason why pay growth is picking up is not because inward migration is
low, it is because the labour market is tight. The jobless rate is the lowest
for more than 40 years," Saunders added.
     The broader economic picture is being clouded by the Brexit process,
however, as it feeds through to soft business investment and the Bank expects Q4
growth to slow to just 0.3% on the quarter.
     "We do expect some short-term volatility in economic data. There have been
some big swings with softness in retail sales, there have been issues with
investment. This is an unusual quarter," Carney said.
--MNI London Bureau; tel: +44 203-586-2223; email:
[TOPICS: M$B$$$,M$E$$$,M$$BE$]