Daily Commentary BY THE CURVE TEAM –

Labour Costs Put More Pressure On BoE

10th of October, 2017

UK markets were on the move last night following a revision on labour cost data that was originally released last Friday. The revision looks to beg the question of whether the next rate decision by the Bank of England will occur sooner rather than later.

As we have heard recently from Governor Carney, heightened inflationary pressures could instigate a shift away from record low rates in the coming months. Whilst it has been widely regarded that this pressure has been attributed to the slump in the pound lifting import prices, a correction to labour cost growth could indicate that there are more structural factors at play.

Following a statistical error, Q2 labour cost growth in the UK was revised upwards from 1.6% to 2.4% and Q1 was also revised up to 3.5%, the fastest pace in nearly four years. The bump in costs may reflect ongoing productivity weakness in the UK, which is now lagging well behind its G7 counterparts.

Whilst we are seeing increasing pressure on the BoE to address the high inflation sooner rather than later, there are still concerns. Weak productivity growth looks to be one of the main ones as it is restricting the ability for wages to lift despite low unemployment.

Back home and we are due both business and consumer confidence this morning. The market will be looking to see if the divergence between the two continues to widen.

Oliver Parsons

Client Relationship Manager