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The labour market: further signs of recovery

Date: 21st June 2021

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:
  • Pay-rolled employees picked up further in May, whilst total employment and hours worked rose in the three months to April.
  • The unemployment rate slipped to 4.7% in the three months to April, whilst the inactivity rate was unchanged in the quarter. The redundancy rate was similar to pre-pandemic levels.
  • Vacancies picked up further in the three months to May, with most industries recovering to show vacancies above pre-pandemic levels.
  • In the three months to April, total pay and regular pay both rose by 5.6% (YOY) in nominal terms and by 4.4% (YOY) in real terms. The data are distorted upwards by compositional effects (arising from the fall in the number and proportion of lower-paid employee jobs) and base effects.
  • Retail sales volumes slipped by 1.4% (MOM) in May after the very sharp increase (9.2%, MOM) in April.
  • The Consumer Prices Index (CPI) YOY rate increased to 2.1% in May, compared with April’s 1.5%, driven by higher clothing and transport costs. The annual data are distorted by base effects.
  • Both output producer prices (goods leaving the factory gate) and input producer prices (materials and fuels used in the manufacturing process) inflation picked up further in May, suggesting some build-up of cost pressures in the “pipeline”. The annual series are, however, also distorted by base effects.
  • The ONS reported that house prices rose by 8.9% (YOY) in April 2021, down from 9.9% in March. They suggested that March’s house prices were boosted by buyers rushing to complete their house purchases ahead of the original March 2021 cut-off date for the stamp duty holiday.
Other UK news:
  • The MPC is meeting next week and no change in policy is expected. The MPC will probably continue to regard the recent increases in inflation as transitory as well as reflecting base effects.
  • The Prime Minister has delayed the move to step 4 (lifting more lockdown restrictions, in England) from 21 June to 19 July.
International update:
  • The Fed left policy very accommodative at their June meeting (15-16 June), regarding the recent increases in inflation as transitory as well as reflecting base effects.
  • On the forecasts, the Fed increased the GDP forecasts and the PCE (personal consumption expenditures) inflation forecasts.
  • In March, the Fed projected the appropriate policy path for the federal funds rate as 0 to ¼% to end-2023. In June, the appropriate policy path was adjusted to 0 to ¼% to end-2022 and ½% to ¾% to end-2023, implying two ¼% hikes in 2023.
Ruth Lea said “The labour market data continue to paint a picture of a recovering economy, much in line with other signs of recovery from other economic indicators. Next week sees the MPC’s June meeting, with the announcement on 24 June. There are few expectations of changes in policy but, given the apparent buoyancy of the recovery, the MPC should seriously consider cutting back the current bond purchasing programme to £100bn, as proposed by Mr Haldane in May.”

For full story: 

Press enquiries:

Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482 
Follow Ruth on Twitter @RuthLeaEcon

Sam Cartwright 
020 7379 4415