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City bets on Bank of England rate hike ramp up again after strong jobs figures

City bets on the Bank of England hiking interest rates soon are ramping up once again after fresh jobless data showed the worst effects of the end of the furlough scheme have been largely avoided.

The Old Lady will turn the dial at its next meeting in December due to the labour market looking less fragile, according to economists, experts and analysts.

Thomas Pugh, economist at RSM UK, said today’s jobless figures showed a key “obstacle preventing” the Bank from hiking rates had been “removed”.

“The continued robust recovery in the labour market will reassure those MPC members who were concerned about damage from the ending of the furlough scheme… most MPC members will probably decide that the labour market is now robust enough to withstand an interest rate hike,” he added.

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Officials on Threadneedle Street justified leaving rates unchanged at a record low 0.1 per cent around a fortnight ago due to a lack of visibility over the impact of the end of the furlough scheme on the jobs market.

The Bank is most concerned about wage pressures fuelling medium term inflation expectations, which could trigger even sharper upsurges in price rises if workers demand higher pay and businesses try to pass on swelling costs to consumers.

Data from the Office for National Statistics (ONS) released this morning showed payrolled employees climbed 160,000 over the last month to over 29m in October.

This is the first time the ONS has examined the labour market when the furlough scheme has not been live since the start of the pandemic, indicating the economy may be strong enough to stand on its own two feet and absorb higher borrowing costs.

“Today’s data has made the odds of a rate rise in December more finely balanced,” Martin Beck, senior economic advisor to the EY ITEM Club, predicted.

The Old Lady decided to keep rates dormant despite expecting inflation to hit five per cent in April next year, more than double its target.

Economists expect near term inflation to blow the Bank’s target out of the water, with some thinking it will reach four per cent.

The ONS will verify whether those wagers are accurate when it releases its latest inflation estimates tomorrow.

CPI inflation is already running hot at 3.1 per cent.


Source: City AM

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UK jobless rate rises again, redundancies hit record high

UK jobless rate rose again in the three months to October and redundancies reached a record high as companies were hit by new coronavirus restrictions and prepared for the end of government job subsidies that were eventually extended into 2021.

Official data showed the unemployment rate reached 4.9%, up from 4.8% in the three months to September, its highest in more than four years.

However, the increase was smaller than expected by most economists. A Reuters poll had forecast a jump to 5.1%.

The number of redundancies reached a record high of 370,000 in the August-to-October period, although it decreased in October alone, the Office for National Statistics said.

“Overall we have seen a continuation of recent trends, with a further weakening in the labour market,” said Darren Morgan, ONS director of economic statistics.

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For much of the period covered by Tuesday’s data, finance minister Rishi Sunak rejected calls to extend his broad job- retention scheme beyond a scheduled Oct. 31 expiry, raising fears of an acceleration in job losses.

But, as a second wave COVID-19 cases hit, Sunak was forced to extend the scheme until the end of March 2021.

“The … extension of furloughing will provide a lifeline for many jobs over the difficult winter months, but the big question is what happens after,” said Tej Parikh, chief economist at the Institute of Directors.

The introduction of vaccines offered some hope, but hiring plans remained stuck in neutral, he said, calling for new measures to help job creation, such as a social security contributions cut.

The Bank of England has forecast that the unemployment rate is likely to peak at nearly 8% in the second quarter of 2021.

The Arcadia fashion group fell into administration late in November putting more than 13,000 jobs at risk, and retail chain Debenhams is closing all its shops, jeopardising 12,000 jobs.

As well as COVID-19, Britain’s economy faces the risk of a shock from the end of its post-Brexit transition period on Dec. 31. London and Brussels remain locked in negotiations little more than two weeks before the possible introduction of tariffs and other barriers to trade with the European Union.

Tax office data showed the number of staff on company payrolls slipped by a monthly 28,000 in November, taking the total number of job losses since February, according to the payrolls measure, to 819,000, a third of them in hospitality.

Job vacancies rose to 547,000 in the three months to November, about 60% higher than during the depths of the pandemic slump but down by about a third from a year earlier.

Reporting by William Schomberg

Source: UK Reuters

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UK jobless rate hits 4.5% as work-protection plan nears end

UK jobless rate rose by more than expected in the three months to August, before the end of the government’s broad coronavirus job-protection plan and the imposition of new restrictions to slow the pandemic.

The jobless rate hit 4.5%, its highest in more than three years and above the forecast of 4.3% in a Reuters poll of economists.

The number of people counted as unemployed rose by the most since 2009, during the global financial crisis, and the Office for National Statistics revised up its estimate of job losses earlier this year, raising its estimate of unemployment in the three months to July to 4.3%.

“Since the start of the pandemic there has been a sharp increase in those out of work and job hunting but more people telling us they are not actively looking for work,” Jonathan Athow, the ONS’s deputy national statistician, said.

“There has also been a stark rise in the number of people who have recently been made redundant.”

The ONS data showed redundancies jumped by a record 114,000 on the quarter to 227,000, their highest level since 2009.

The number of people in employment fell by 153,000, much higher than a median forecast for a fall of 30,000 in the Reuters poll.

Finance minister Rishi Sunak reiterated on Tuesday that his priority remained to slow the rising job losses. However, he is replacing a 50 billion-pound wage-subsidy scheme, which expires at the end of this month, with a less generous programme.

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“I’ve been honest with people from the start that we would unfortunately not be able to save every job,” he said.

Prime Minister Boris Johnson introduced a new system of restrictions for England on Monday that will hit the hospitality industry, and a minister said the government may have to go further.

“With economic support falling just as lockdown restrictions increase across the country, we should prepare for a major increase in unemployment over the coming months,” said Nye Cominetti, an economist at the Resolution Foundation think tank.

The Confederation of British Industry said ramping up testing was key to securing an economic recovery.

There were some positive signs in Tuesday’s data.

Tax office figures showed the number of staff on company payrolls rose by a monthly 20,000 in September, slightly reducing the total number of job losses by that measure since March to 673,000.

The number of job vacancies rose by the most on record in the three months to September, although the total remained down 40% compared with a year earlier.

The Bank of England has forecast that the unemployment rate will hit 7.5% by the end of the year. But BoE Governor Andrew Bailey on Monday repeated his warning that the recovery could prove weaker than the central bank’s forecasts.

Britain’s economy grew in August at its slowest pace since May as its recovery from the lockdown slowed.

Scores of companies have announced plans to cut jobs since the pandemic struck. Last week the owner of clothing retailers Edinburgh Woollen Mills, Peacock’s and Jaeger put 24,000 jobs at risk by saying it was set for administration.

Reporting by William Schomberg and Andy Bruce

Source: UK Reuters

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