The Bank of England is more likely to raise interest rates following the latest employment figures out today, as the ending of the pandemic-related furlough scheme has not caused a major rise in job losses.
Figures from the Office for National Statistics (ONS) showed unemployment was at 4.3% in October – the first full month since the close of the UK furlough scheme.
At the time it was withdrawn, around 1 million people remained on furlough, the ONS said, with some expecting a rise in job losses. However, the October figure was better than expected, with nine in 10 people on furlough retaining their employment.
Source: ONS
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the latest figures indicated that higher prices (inflation) may prove to be “stickier” than first thought and could lead to a rate rise in December.
“The governor of the Bank of England – Andrew Bailey – says he is uneasy about rising inflation and the jobs figures are another indicator that there could be a fresh sugar rush of higher wages,” she said.
Ambrose Crofton, global market strategist at J.P. Morgan Asset Management, said the latest employment figures should “open the door” to a potential interest rate hike in December.
“Now that today’s labour market data shows that the furlough hurdle has been cleared, we think the Bank of England have the green light for interest rate lift-off at their December meeting,” he said.
Streeter agreed, although she said that Bailey “appears steadfast in this view that sweeteners for staff will be temporary”. With starting salaries this Autumn at their highest rate in 24 years, wage increases are likely creating a short-term rise in inflation, something the Bank will be wary of.
This is coupled with a sustained increase in prices in the medium term from varying global supply chain issues, which have pushed up costs for companies around the world.
“The pandemic bounce back has buttered up demand for goods and now potential has grown for higher wages. It looks increasingly likely the Bank will raise rates at its [December] meeting,” she said.
Paul Craig, portfolio manager at Quilter Investors, said the Bank may have been “overly cautious” by holding rates at its previous meeting, but noted that the employment landscape “remains uncertain” as the economy heads into a challenging winter.
“This was a crucial factor in the Bank of England’s surprise decision to hold interest rates at 0.1%. Time will tell whether the Bank are ultimately vindicated,” he said.