UK Labour Market and EU Growth in Focus

UK Labour Market in Focus:

This morning has seen the UK labour market in focus, with markets assessing unemployment remaining unchanged at 3.7%, in line with expectations. The UK labour market continues to show signs of being tight with historically low levels of unemployment and high job vacancies. Nevertheless, during Q4 2022,?the Bank of England’s warned that unemployment could rise to 6.5% over the next few years as the UK economy enters what could be its longest recession in a century. A recent study also suggested that there was a worker shortfall of 330,000 due to Brexit related curbs, and thus while today’s data shows little cause for concern vis-à-vis unemployment, there are still a number of structural concerns on the horizon.

Average earnings excluding bonuses also came 0.2 percentage points above expectations, hitting 6.7% on an annualised basis for the three-month period up to December. This marks the biggest rise since records began in 2001 (excluding the recent pandemic caused peak). Nevertheless, given headline inflation continuing to be in double digits, when adjusted for inflation, regular pay fell 2.5% while total pay including bonuses dropped 3.1%.

When looking at the divide between the public and private sector, while the former saw wage growth of 4.2%, the latter experienced 7.3%. Elsewhere the number of job vacancies fell for the seventh consecutive quarter by 76,000 in November to January, indicative perhaps of some readjustment from the Great Resignation.

EU Growth in Focus:

This morning will see the release of Eurozone GDP Figures Q4 2022 where the general market consensus is expecting a print of 0.1% growth on a quarter-on-quarter basis. This follows last quarter’s print of 0.1% indicating that the EU is only narrowly avoiding a recession, though markets, investors and policy makers have gained optimism in the fact that this is a softer-than-expected landing. Across the currency-union, Q4 was underpinned by easing energy insecurity, which aided business activity and investment. Increases in exports from countries including France and Spain may also assist Eurozone figures more generally.

Yesterday, the European Commission upwardly revised their growth forecasts for the currency union and maintained that the single market was on a better footing for growth than previously anticipated. ?Indeed, the commission brought up their growth outlook for this year by 0.6 percentage points to 0.9% in the Euro Area and forecasted that each country would experience growth (unlike the UK for instance based on almost all economic assessments). On the topic of inflation, Frankfurt expected that inflation would fall from an average of 8.4% in 2022 to 5.6% in 2023 before subsiding to 2.5% in 2024. This easing of inflation takes place as TTF gas futures continue to fall from record highs, while supply chain issues ease and the tightness of the labour market shows some signs of easing too.

This follows Christine Lagarde sentiments last week which saw the ECB’s Governor state "overall, the economy has proved more resilient than expected".

Away from Frankfurt’s own assessment, more globally the IMF’s similarly upwardly revised growth expectations from 2.7% to 2.9%. Here, the IMF citied China’s recent reopening “[paving] the way for a faster-than-expected recovery” and better than expected growth in the US, Eurozone and some emerging markets. Nevertheless, the IFM warned that “the balance of risks remains tilted to the downside” given the ongoing conflict in Ukraine, tightening monetary conditions and persistent Covid concerns. Regarding global inflation, the IMF predicted that it “is expected to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, still above pre-pandemic (2017–19) levels of about 3.5%”.?

Markets Await US CPI Print:

At 13:30 this afternoon, markets will be focusing on US CPI where the general market consensus is expecting a pint of 0.4% on a month-on-month basis for January and 5.5% on an annualised basis. Given its implications on the Fed’s next interest rate decision (16th March), markets will be hotly anticipating this inflation print. Last month, December’s headline print indicated an easing of energy inflation while the US also saw a slowdown in the rate of food-price inflation.?