The UK labour market report released today was mixed. On the one hand, the unemployment rate (3M average) declined to 5.2% in October from 5.3% in September - the last time it was lower was in January 2006. On the other hand, wage growth - in terms of the annual growth rate in average weekly earnings excluding bonuses (3M) - slowed to 2.0% y/y in October from 2.4% y/y in September.
Today's labour market report is released after BoE governor Mark Carney, in an interview with the Financial Times, stated that the conditions for a BoE hike at the turn of the year have not been fulfilled. He said, 'so in terms of overall growth, it's been there, but in terms of the cost developments, it hasn't been'. Our interpretation is that a BoE hike in Q1 16 now seems off the table despite the tighter labour market. Recently, we moved our call for the first BoE hike to Q2 16, probably May (previously Q1 16, February). The combination of slower wage growth, lower oil prices and the poor risk environment are main reasons why the BoE is now on hold.
To read the entire report Please click on the pdf File Below