U.K. employment rises above expectations in three-months to June, jobless rate rises to 3.8 pct

Employment in the U.K. continued to rise, increasing 115k in the three-months to June, exceeding market expectations of a 60k rise. Most of the rise was seen in part-time employment. However, the companies continued to hire workers, implying that firms are expecting the rate of economic activity to rebound in the months ahead.

This underpins the view that following the fall in Q2 GDP, which was mainly because of the unwinding of a number of Brexit-related effects that temporarily boosted GDP in the first quarter, the U.K. is unlikely to fall into a technical recession in 2019, said Lloyds Bank in a research report.

However, in spite of the above-expectations rise in employment, the jobless rate rose to 3.9 percent from 3.8 percent previously, marking its first rise since the third quarter of last year. This reflected the fact that the 115k rise in employment was not enough to account for the flow of people entering the labor market, either from previously being inactive or from the increase in working-age population.

“Still, with the inactivity rate once again moving back to its record low, it is unlikely that this cohort will be a significant source of labour supply in the coming months and quarters”, said Lloyds Bank.

Bank of England might have once concern that as it becomes increasingly harder to lower the inactivity rate, the alternative might be greater upward pressure on wages. Average earnings growth came in at 3.7 percent three-month/year for the measure including bonuses, while on the ex-bonus measure, pay growth rose to 3.9 percent. Neither of these rates have been bettered since 2008.

Adjusting for inflation, real earnings grew at 1.9 percent three-month/year in the second quarter, at its most rapid pace in nearly four years. Thus, in spite of consumer sentiment at below average levels, the fundamentals of a growing labor force with increased real-terms pay still serves to support expectations for consumer spending.

“Overall, this latest news is a reminder that there is pay growth in a tight labour market, which is consistent with a higher level for Bank Rate in due course”, added Lloyds Bank.