UK Employment: Levelling Out?

It’s not surprising that UK employment figures are one of the most tracked data points at the moment.

Expectations are for the BOE to be the first of the major banks to draw down their support for the economy after the pandemic. And we expect the trigger to be related to the employment situation, since the bank has repeatedly said that’s the key to maintaining both price stability and economic growth.

Even before the pandemic, the ILO employment figures could move the markets.

But as covid cases across the UK dropped, a potential wrinkle came out on Friday. PM Johnson held a press conference to address the “Indian variant” that is spreading through the country.

According to the PM, the Indian variant could delay the reopening program. Of course, this happened after the time period that the data about to come out covers. However, UK markets are starting the week on a somewhat dour note.

So, there might be more appetite for a better result from the employment figures.

What we are looking for

The data comes out before trading gets underway.

While the ILO unemployment figure is likely to get most of the headlines, it’s more likely that the claimant count will have a bigger impact on the market. This is because the unemployment rate is a rolling three-month average to March (basically, the first quarter).

However, the claimant count is from April and is fresher data. Therefore, it could give us some advance warning of the labor market trends.

Expectations are for the UK April Claimant Count to more than double to 25K from 10.1K reported in the prior month. Remember, the higher the number, the worse it is, because this is the net number of people seeking unemployment benefits.

For almost a year now, the figure has been swinging between negative and positive. But the last couple of months has shown a build in the number of people seeking unemployment benefits.

A further third month of increase might suggest that the employment situation in the UK has reached a stalling point. Therefore, we might not see as much job growth as anticipated to support further easing by the BOE.

Figuring out where things are going

Expectations are for the running 3-month average ILO unemployment for March to come in at 4.9%. This result would be the same as that of the prior month.

Although not necessarily concerning by itself, UK unemployment had been on the downswing after peaking out in January. Since then, the vaccine rollout has allowed for the significant easing of the restrictions.

This was most significantly the case in small retail, such as pubs and restaurants. And these were expected to have brought back a substantial number of employees.

It could be concerning that the unemployment rate is stagnating in the middle of the economic reopening process. Since the UK is the farthest ahead of the Western countries, it could be a sign of what will happen in other countries that go through the same process. The US just recently announced that masks won’t be necessary after vaccinations, the prelude to fully opening the economy around one month after the UK.

The short version is we can expect the market to react based on BOE expectations. If the unemployment rate continues its downward trajectory, we could expect a stronger pound as traders assess a sooner normalization of BOE policy.

And if unemployment were to move higher, it could make investors nervous about the trajectory in the economy, especially considering the spread of the Indian variant.

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