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UK labour market loses more steam as BoE mulls rates stance

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© FILE PHOTO: A clothing retail shop advertises for workers in Brighton, Britain, August 15, 2023. REUTERS/Toby Melville/File photo

By Andy Bruce and William Schomberg

LONDON () -Britain’s labour market lost a bit more of its inflationary heat in the three months to August, data from the Office for National Statistics (ONS) showed on Tuesday, potentially helping the Bank of England to keep interest rates on hold next week.

While the unemployment rate held steady at 4.2% under a new calculation that accounts for dwindling survey responses from households, the number of employed people fell by 82,000 and unemployed rose by 74,000.

The BoE is monitoring the labour market closely as it considers whether it needs to resume raising interest rates, having kept them on hold in September after 14 hikes in a row.

The experimental figures included new data sources to compensate for a falling response rate to the Labour Force Survey (LFS) of households, which usually forms the basis of Britain’s job market statistics.

Under the previous methodology, the unemployment rate had been reported as 4.3% for the three months to July rather than 4.2%.

Still, the new data showed more slack in the labour market than the BoE had predicted in August, when it forecast an unemployment rate of 4.1% for the third quarter as a whole.

“We doubt that the new statistics will prompt the (BoE) to resume its tightening cycle at its meeting next month,” said Thomas Pugh, economist at accountants RSM.

A poll of economists published on Tuesday showed a large majority of economists think the BoE will hold its Bank Rate at 5.25% on Nov. 2.

However, officials at the central bank remain worried that a strong pace of wage growth might entrench inflationary pressures in the economy.

Data published by the ONS last week showed average earnings, excluding bonuses, were 7.8% higher during the three months to August than a year earlier, the first such fall in the pace of growth since January but barely down from a record 7.9% in the three months to July.

“It is probably only a matter of time before the recent loosening of the labour market feeds through into significantly slower wage growth,” Pugh said.

Financial markets showed little immediate reaction to Tuesday’s data.

The latest ONS estimate showed employment fell by 133,000 in the three months to July, compared with 207,000 in its previous estimate.

The ONS said the new methodology included using jobs data collected by Britain’s tax office over a three-month period and changes to welfare claims as a proxy for measuring unemployment, also over three months, on top of the LFS survey findings.

“These data sources have themselves had their issues over the years, so it is not a good sign that they are now considered more reliable than the official survey,” Tony Wilson, director at the Institute for Employment Studies, a think tank, said.

“Hopefully normal service will be resumed in the coming months.”

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