Wednesday, January 20, 2010
Good news on unemployment, neutral minutes
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

The labour market news continues toi be better than expected. While employment in the September-November period slipped by 14,000 to 28.92 million - a 113,000 drop in full-time employment being offset by a 99,000 rise in part-timers - unemployment on the LFS measure fell by 7,000 to 2.46 million, the first drop since May 2008, while the unemployment rate remained unchanged at 7.8%.

The claimant count also fell, for a second successive month, dropping by 15,200 to 1.61 million, the largest monthly drop since April 2007. While the labour market is far from strong, and average regular pay is rising by just 1.1% annually, the labour market outcome continues to be far better than feared. More here.

The Bank of England's monetary policy committee meeting earlier this month came well before these numbers. The minutes, just released, are available here and remained downbeat.

"Overall, the data were consistent with the view that the UK economy had begun to expand again, albeit weakly," they said. "But the strength and durability of any recovery would depend on the interplay of the significant tailwinds and headwinds affecting activity. The main supports to activity remained the significant degree of policy stimulus and the past depreciation of sterling. It was unclear how much net trade had yet responded to that depreciation, but the Committee agreed that some boost would eventually occur.

"There remained powerful headwinds impeding the recovery. The supply of bank credit was likely to remain impaired for a sustained period as banks sought to adjust their balance sheets and refinance their own funding maturing over the coming years. Uncertainty about prospective incomes was likely to prompt more cautious behaviour by households, encouraging greater saving than in the past, and investment was unlikely to recover strongly so long as a significant margin of spare capacity existed in the economy. In addition, it was clear that a significant fiscal consolidation was needed in the United Kingdom, the precise nature and pace of which remained unclear, and to which monetary policy would need to respond as new information became available."