A near record employment rate and earnings growth reaching the top of the safety limit for inflation should rule out an early cut in interest rates, says CIPD Chief Economist Dr John Philpott.
Commenting on the latest official labour market statistics released today by the Office for National Statistics, Dr Philpott continued:
An employment rate close to 75% and underlying growth in average earnings of 4.5% indicates that the UK labour market is now operating close to full capacity. Although unemployment rose by 32,000 in the three months to December this was due to a large fall in the number of economically inactive people; more than 60,000 of these entered the labour market to take up or search for jobs. While an increase in the supply of labour is welcome, and might in due course ease wage pressure, there is a serious question mark over the ability of many available jobless people to fill the 650,000 vacancies currently on offer.
A combination of strong demand for labour and limited effective supply makes the labour market a clear upside risk to inflation. Unless and until clear evidence emerges that wage pressures are subsiding there is no case for an early cut in interest rates. Indeed, the weight of evidence in todayís figures raises the chances that the next move in interest rates will be up rather than down.
No case for early cut in interest rates as labour market approaches full capacity
A record employment rate and earnings growth reaching the top of the safety limit for inflation should rule out an early cut in interest rates
