UK employment falls in three months through Oct, but wages defy Brexit shock

UK employment fell for first time in a year in the three months to October, official data released by Britain's Office for National Statistics showed Wednesday. The number of people in work fell by 6,000, the first decline since the second quarter of last year, the Office for National Statistics said.

Britain's unemployment rate stayed at 4.8 percent in line with expectations, while basic pay rose at its strongest pace since the summer of 2015. The number of people out of work also fell, by 16,000. The number people claiming unemployment benefit rose by 2,400 in November more than previously, but less than forecasts for a rise by 5,500 in November.

Wages in the August-October period showed solid gains. Earnings including bonuses rose by an annual 2.5 percent, compared with 2.4 percent in the three months to September, beating expectations for a wage growth of 2.3 percent. Excluding bonuses, earnings rose by 2.6 percent y/y more than a 2.5 percent rise expected.

However, rising inflation expectations are likely to weigh on the pace of wage growth. Inflation rose to 1.2 percent in November, its highest level in more than two years, and is expected to climb sharply towards 3 percent by the end of next year, reflecting the sharp fall in the value of the pound since the Brexit vote.

U.K. labor market development will be closely monitored. Combined with a widely-anticipated upsurge in inflation, rising unemployment would likely have an adverse impact on consumer spending, a key driver of the British economy, hurting its growth prospects.

“Policymakers face a difficult year ahead, keeping a close eye on the threat of inflationary pressures becoming embedded in the economy while simultaneously keeping the economy growing at a steady pace amid Brexit uncertainty," said Chris Williamson Chief Business Economist, IHS Markit.

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