Ear to the Ground

17 May 2024

All eyes were on UK jobs data last week, as forecasters looked for hints that the tightness in the market could be wearing off.  It wasn’t to be however.  Average earnings including bonuses for the 3 months to March came in 5.7% higher year on year.  This was above the consensus forecast of 5.3%.  Whilst it is very much a lagging indicator, the Bank of England will be conscious of the current level, especially because we continue to see strong wage growth in both the public and private sectors. 

Whilst figures this high are perhaps a hinderance when it comes to inflation, they are potentially a positive when it comes to economic growth.  With incomes growing at a faster rate than consumer prices the consumer has real income growth and therefore potentially more disposable income to spend.  However, with consumer inflation likely to see a sharp leg down, driven by the energy price cap change, it will be interesting to see how long employees can continue to demand such meaningful wage increases.

In the US meanwhile it was inflation data which took centre stage.  Figures for April revealed that prices grew 3.4% year on year.  This was slightly lower than the previous months reading of 3.5%.  Whilst it still remains above the 2% target, there was certainly a sense of relief that we did not see a pick up like was seen in February and March.

Still, it is perhaps a little too early to get excited about it just yet from an interest rate cutting perspective.  If you cast your mind back to the start of 2024, market expectations were that we could see 6-7 rate cuts during the course of the year.  Fed Funds Futures, however, now suggest we will see 1-2 cuts at the most in the US.  With the Presidential Election slowly but surely creeping up, the number of opportunities left for the Federal Reserve to act are reducing.

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