Deutsche Bank economist Sanjay Raja notes that recent UK labour market data show stabilisation, with the jobless rate holding at 5.2% and employment and payrolled employees beating expectations. Wage growth is slowing, giving the Bank of England (BoE) some comfort. However, Raja warns that the Iran conflict, weaker sentiment and high energy prices could quickly derail any nascent recovery.

Stabilisation tempered by geopolitical risks

"Today’s labour market data will make for some positive reading. After nearly a year of disappointment, signs of stabilisation are emerging. The jobless rate stayed put at 5.2% – sitting below market expectations."

"Employment (3m/3m) jumped 84k (against expectations of a 12k fall). HMRC data showed a 20k rise in payrolled employees, with the UK now seeing a 32k increase (cumulatively) over the last three months – again beating expectations. And while vacancies dropped for a third straight month, they didn’t fall as much as we expected, coming in at 721k."

"Perhaps in better news for the Bank of England, wage growth showed yet another slowdown to start the year. AWE Regular Pay growth slipped to 3.8% (3m/YoY) with the all-important AWE Private Regular Pay print slipping to 3.3% (3m/YoY). We’re now seeing some marginal downside to the Bank’s forecasts. This, we think, can allow the MPC to remain cool-headed as we brace for another inflation wave – at least for now."

"Moreover, despite the better data on the quantities side of the labour market, the Bank of England will know that the tepid signs of recovery could fade very quickly. The Iran conflict will induce a new wave of uncertainty. Sentiment will likely get hit. Demand will drop. And naturally, hiring plans may get shelved. "

"Put simply, we are not out of the woods yet. While the labour market may be stabilising – or even showing some signs for a spring recovery – high energy prices could stall any labour market recovery. Indeed, while there are silver linings spread across today’s report, dark clouds are approaching.“"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)