If Bank of England governor Andrew Bailey was serious when he said he was looking at UK labour market data for clues as to whether to raise rates, then today’s unemployment data is giving him fewer excuses not to act with a modest rate increase next month. This of course assumes you can believe anything he and the MPC say on the matter.
His assertion yesterday that he feels uneasy about high levels of inflation won’t have been eased by today’s latest labour market data that saw ILO unemployment for the three months to September slip back to 4.3%, with the monthly September figure falling to 3.9%, while vacancies rose to a new record of 1.17m for the three months to October, a rise of 64k.
Wages data was mixed, with the weekly earnings excluding bonuses slipping back to 4.9% from 6% for September, which suggests that wage pressure is subdued for now.
What is more concerning is why this uncertainty over a rate rise even exists at all, and that is entirely down to the inability of the Bank of England to stick to a particular narrative. The Bank of England has been utterly woeful in recent years in guiding market expectations, unlike the Federal Reserve which generally has been much more consistent.
With tomorrow’s CPI numbers set to move up towards 4% and even beyond, the Bank of England is running out of excuses, and for its own credibility now needs to re-establish some sort of rapprochement with the market, when it comes to its communication strategy.
The reaction of the pound to today’s data is telling that we’ve seen only a modest uplift and are still below the highs against the euro and yen from earlier this month. Gilt markets are also starting to price in a move next month, with the 2 year yield unchanged at 0.567%, which suggests that markets are being much more cautious, than was the case last month.