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U.K. employment growth regains momentum in January, jobless rate falls to 3.9 pct

The latest U.K. labor market figures released indicated that economic trends continued to be strong at the start of this year, in spite of the ongoing uncertainties regarding the longer-term economic outlook. Growth in employment regained some momentum, recording an above-consensus rise of 222k in the three months to January, as compared with consensus expectations of 120k. Such a solid rate of job creation proved enough to push the jobless rate down to 3.9 percent, a rate not seen in the U.K. since the mid-1970s.

Demand for labor continued to stay strong, given the series for job vacancies, which recorded a near-record high of 854k in the three months to February 2019. This is in spite of the employment component of the IHS Markit Composite PMI recording a sub-50 outturn in both January and February, indicating a contraction in employment intentions, noted Lloyds Bank in a research report.

Over half of the 222k total gain in employment in the three months to January was accounted for by people transferring straight from being outside the labor force and classed as inactivity, with the remaining increase in employment coming from those already in the labor force but who were unemployed. Consequently, for the population aged 16-64, the economic inactivity rate dropped further in the latest report, falling to 20.7 percent, the lowest since records started in 1971.

The Bank of England might have once concern that as it becomes increasingly difficult to lower the inactivity rate, there might be greater upward pressure on wages. The continuation of disappointing news in terms of productivity might not have done much to ease concerns amongst monetary policy setters either. However, details showed that the composition of employed growth made pleasing news. A considerable proportion of the rise in employment were in jobs that were classified as being full-time, with the rest coming from part-time jobs.

Meanwhile, measures of pay growth also continued to stay strong. Both the measure including bonuses, and the ex-bonus series rose 3.4 percent on a three month to year basis. On an ex-bonus basis, this is a rate that has not been bettered since 2008. Adjusted for inflation, real earnings rose 1.6 percent in the three months to January. Therefore, in spite of the consumer sentiment at below average levels, the fundamentals of a growing labor force with increased real-terms pay serves to support expectations for consumer spending.

“Overall, the latest UK labour market report shouldn’t really change expectations for interest rates much. The Bank of England used the February Inflation Report to signal a more cautious outlook on Bank Rate increases. However, 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.

At 12:00 GMT the FxWirePro's Hourly Strength Index of British Pound was bearish at -98.6189 while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -76.331 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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