UK: Gauging the referendum effect - ING

James Smith, Economist at ING, notes that yesterday’s UK labour data was better than it could have been, but still reflects a significant slowdown in hiring during 1Q in response to referendum uncertainty.

Key Quotes

“Against expectations for a possible fall in employment and rise in unemployment, yesterday’s data surprised markets positively. In the three months to March, the economy added 44,000 jobs (in fact, the single month increase was around 150k) and unemployment remained broadly flat. This came despite survey evidence, not least from the Markit/CIPS PMIs and a recent Deloitte survey, which suggests that firms are holding back on hiring/investment until the outcome of the vote becomes clearer. With that in mind, the key thing to note is the number of jobs added in the first quarter was less than 25% of the amount added in the last three months of 2015.

If the UK votes to remain in the EU, then we would expect activity to rebound as firms reinstate delayed hiring/investment plans. However, the slowdown in activity thus far during this quarter suggests that this rebound may take longer to materialise than first thought. Thus, we have revised our forecast for the first BoE rate hike to 1Q17. If the UK votes to leave, then the BoE may cut rates to shore up confidence in the near-term.”