UK September labour report shows signs of weakness, particularly on wage growth

Today's September labour report shows signs of weakness, particularly on wage growth. While the September unemployment rate fell to 5.3%, the large increase in the October claimant count warrants this to be read with caution as the former may rebound in the coming months. Further, the Bank of England Agents' Report shows a marked decline in employment expectations over the next six months in both consumer services and manufacturing, with business services employment expectations flat. 

More concerning, however, is the surprise downside in core wage growth, easing to 2.5% 3m/y. This, however, is in line with the Bank of England's MPC views outlined in the November minutes in which it claims it expects "annual pay growth to ease back a little during the rest of the year" in light of "downside news concentrated in regular pay growth". This significant softening now sees real wage growth starting to ease. 

"If our inflation forecasts are realised and core wage growth does not pick up and at an increasing rate, we could begin to see real wages dip further, eating into consumption, supporting our view that private consumption will slow into H2 15 and 2016", says Barclays.