UK: Relative stability might have played a role in the MPC’s decision last week - TDS

Research Team at TDS, notes that the UK employment data for the three months ending in May revealed a relatively unchanged labour market – the unemployment rate improved slightly to 4.9% (its best reading in over a decade) and core wage growth held at 2.4% 3m/y (headline growth bounced from 2.0% 3m/y to 2.3% 3m/y on bonus volatility).

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“This is a relatively lagged release, so is not of great importance to the MPC right now, other than suggesting that the UK labour market was in good shape ahead of the Brexit vote.

The Bank of England’s Agents Survey was also released, and painted a relatively benign picture of firm activity around the EU Referendum vote (most firms were surveyed prior to the vote). In terms of the impact of the referendum, the bottom line seems to be one of great uncertainty – firms are now undertaking strategic reviews to assess what plans they need to change in light of the vote.

Until those reviews are finished, they are pursuing business-as-usual plans, consistent with the fact that on June 24th, the UK still remained a member of the EU. This relative stability might have played a role in the MPC’s decision last week to not cut interest rates – it was clear there wasn’t a sharp panic that some had feared (and indeed some other surveys had shown).”