The story is very similar when looking at the latest employment figures. We have seen a steady cooling in hiring demand and a corresponding rise in unemployment in recent months. Furthermore, the Office for National Statistics has made it very clear that the Labor Force Survey, on which these figures are produced, is suffering from a shrinking sample size and is consequently less reliable. The ONS has therefore published a series of “experimental” figures, drawing on data from various sources to improve reliability. These figures show that the unemployment rate remained at 4.2% in two overlapping three-month periods between May and August, but unfortunately we do not have the new series above, so it is difficult to make firm comparisons with the above.
The recent PMIs do not seem to be without problems either. Last month’s Services PMI was revised up from the initially published figure of 47.2 to 49.3, which was a massive and quite unusual revision. It’s not entirely clear exactly what’s behind this, although it’s possible that some tweaks to the seasonal adjustment process explain some of it. Many data, not just in the UK, have become much more difficult to adjust seasonally after lockdowns strongly distorted typical patterns between different months.
The bottom line is that the Bank is likely to take the latest employment and PMI figures with a grain of salt. In any case, last week’s important wage growth and services inflation figures did not substantially exceed expectations.
Given that the Bank opted to keep rates unchanged in September, and we have had very little data between then and now, and what we have had has not changed the inflation outlook, it is difficult to imagine the Bank of England returning to rate hikes. rates when it meets next week. Our base case is that rates will remain unchanged until next summer, when the committee will likely be in a position to begin gradually reducing rates back to a more neutral position.