Tight labour market and firm pay growth will worry the MPC

Contentious new Labour Force Survey data implies the UK jobs market was much tighter in H2 2023 than we previously thought, while our own sentiment data developed with Penta suggests conditions are little changed in early-2024.

What you will learn:

• Our nowcast also suggests that the slowdown in wage growth has faded. We think this combination of a tight labour market and solid wage growth is likely to lead the Monetary Policy Committee to take a cautious approach to the timing and pace of rate cuts.
• Though the LFS has been reintroduced, the new estimates don’t tackle the key problem of small samples. This issue should be addressed when a transformed LFS is belatedly introduced in September, but could also mean there are further revisions to the recent data.
• Concerns over the reliability of official data show the importance of monitoring alternative data sources. Our sentiment indicators offer a consistent overview of labour market developments, as well as providing a timelier snapshot of conditions.