UK labour market likely to be back to normal despite high unemployment rate

Despite the higher UK unemployment rate and lower employment it is worth noting that the labour market is still more or less back to 'normal' as Bank of England estimates that the medium-term equilibrium unemployment rate is around 5.5%. In other words, the slack in the labour market has diminished of which the accelerating wage growth is also a sign. 

The fact that the improvement in the labour market seems to have eased could be an early indication of increasing productivity. This would be good news for the UK economy as output per hour has been unchanged the past five years.

Bank of England governor Mark Carney said that the first Bank Rate hike 'is moving closer', speaking to the Parliament's Treasury Committee yesterday. Mark Carney said something similar last year but the economy is in much better shape now. 

David Miles, who is considered as one of the doves, said in a speech yesterday that the 'first move up in Bank Rate soon is likely to be right'. The comments indicate that the first hike is impending and supports our non-consensus call that the Bank of England will hike at the November meeting.


"The minutes from the last MPC meeting in July are due for release next week. The vote count is expected to be unchanged at 9-0. Comments on the increasing wage growth will likely attract attention as wage growth has outpaced the projection from the last Inflation Report in May", says Danske Bank.