Ongoing weakness in private sector hiring and wage growth bolsters our call for the Bank of England to keep rates on hold this year, unless things get materially worse in the energy market
What’s striking about the latest UK jobs numbers is just how much the picture varies by sector. Overall, the backdrop looks stable – is unchanged at 4.9%, payroll employment is flat, and vacancies are levelling out.
But as has been the case throughout this year, the government is performing a lot better than the private sector. Public sector payroll numbers are up 0.7% so far this year, where the private sector is down 0.5% – including a further decline through June.
That weakness is particularly concentrated in consumer services – hospitality, retail and entertainment – where we’re seeing employment fall at close to 3% annualised rates, with that pace of decline showing little sign of easing off. We think that’s a consequence of last year’s National Insurance and minimum wage hikes, coupled with the fact that some of these sectors had begun to look overstaffed (weak productivity) after extreme post-COVID jobs market tightness.
Consumer-Facing Industries Have Suffered
Source: Macrobond, ING
Admittedly, we shouldn’t overstate the weakness. This is a story of attrition; redundancy numbers are relatively low. But this consistently low hire, low fire jobs market has had a clear impact on wage growth.
Again, the difference is stark between the public and private sectors. Pay is growing in excess of 5% annually in the former, while the private sector is experiencing wage growth below 3%. That’s down from 6% just 18 months ago and is below the level that the Bank of England thinks is consistent with achieving a 2% inflation target over the medium-term.
This is a key factor in our call for the Bank of England to keep rates on hold this year, unless things get materially worse in the energy market. Just as we saw with the rise in headline inflation 12 months ago, the weaker jobs market should mitigate the risk of second-round effects and a long-lasting bout of price pressure.
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