U.K. jobs market shows resilience for now against Brexit fallout

Britain’s labor market isn’t cracking under the weight of Brexit yet. Companies added 172,000 jobs in the second quarter and the unemployment rate held at 4.9 percent, showing resilience in the buildup to the June 23 referendum when the U.K. decided to quit the European Union. While the data available for July – after the vote – are more volatile, they show an unexpected drop in jobless claims.
The latest statistics office numbers appear to contrast recent surveys showing company sentiment and hiring intentions are weakening, still economists have said it may take time for any Brexit fallout to feed through. The Bank of England expects unemployment to rise only gradually – to 5.1 percent by early next year — though it’s already taken pre-emptive action with an interest-rate cut and a new round of quantitative easing to stave off a bigger shock.
The potential weak spot in Wednesday’s data was job vacancies, which continued their downward trend after reaching a record at the start of the year. Openings fell 7,000 in the three months through July to the lowest since October 2015. Experimental monthly data, which may provide an indication of future trends, showed employment fell in June alone and the jobless rate rose to 5.1 percent.
“The momentum in employment growth seen ahead of the referendum is fading relatively slowly for now,” said Allan Monks, an economist at JP Morgan in London. “We continue to expect job growth to soften materially from here, a message already flagged in the more forward looking survey and vacancies data.”
The 8,600 decline in jobless claims in July was the biggest since February. Economists had forecast a rise of 9,000 in the number, which can be volatile and includes some low earners claiming benefits. In the second quarter, basic wage growth accelerated to an annual 2.3 percent.
Alan Clarke, an economist at Scotiabank in London, said the labor data “provide a glimmer of hope.”
“If fears of the pre-Brexit jitters proved unfounded, maybe the post-referendum doom and gloom may equally prove to have been overcooked,” he said. “The acid test will be the next few months to see if hiring stalled in the aftermath of the vote. I suspect that will take longer to show up.”
Some surveys have indicated hiring was being put on hold in the run-up to the EU referendum as uncertainty prompted employers to defer recruitment. Markit and REC said in a report this month that the number of people being hired for full-time positions slumped the most in seven years in July.
The BOE said measures of investment and employment intentions have “weakened in absolute terms since the referendum result.” The central bank cut its growth forecasts on Aug. 4, though its central projection is that the economy will avoid a recession. It also sees unemployment rising to just 5.6 percent by mid-2018. After the 2008 recession, the jobless rate peaked at 8.5 percent, versus more than 12 percent in the euro area.
“Unless there is a significant contraction in demand in either the U.K. or its key trading partners, the U.S. or Europe, the increase in unemployment following the Brexit vote should be limited,” said Kallum Pickering, an economist at Berenberg in London. “The U.K. benefits from a highly flexible labor market. As in past shocks, a fall in hours worked and slower wage growth will likely cushion the blow to total employment.” Scott Hamilton, Fergal O’Brien, Bloomberg