Labour market no longer poses a threat to inflation target

Official figures released this morning by the Office for National Statistics (ONS) showing only a small rise in employment in the three months to April, fewer job vacancies, higher claimant unemployment and stable growth in underlying earnings, indicates that the UK labour market is starting to cool. And the news is consistent with the latest quarterly Labour Market Outlook survey from the Chartered Institute of Personnel and Development (CIPD), which shows that while the immediate jobs outlook remains fairly bright, almost half of UK employers expect to employ fewer people this time next year.

John Philpott, Chief Economist at the Chartered Institute of Personnel and Development comments, ìAny remaining fear on the part of members of the Monetary Policy Committee that labour market conditions do or might in the short-term pose a threat to the inflation target should be eased by todayís data. And with Retail Price Inflation, which remains the principal cost of living reference in pay bargaining, having eased in recent months, there seems little prospect of any early resurgence in underlying wage pressure.î

ONS first quarter Workforce Jobs data also confirm CIPD and other independent survey evidence on emerging weakness in employment prospects in key consumer services sectors. The distribution, hotels and restaurants sectors registered no net rise in jobs in the year to March 2005 and actually saw net job losses in the first quarter. The consumer slowdown is now taking its toll on jobs, with workers in several consumer service sectors feeling the chill wind that in recent years has mainly afflicted workers in manufacturing.

Philpott concludes, ìAll the signs are that the labour market is not as tight as last year. And with wider economic data pointing to the possibility of below trend growth this year the case for an autumn cut in interest rates is growing stronger.î