On Thursday, the Bank of England (BoE) will make its widely anticipated decision on interest rates. This shock to the UK economy comes as economic data at home and abroad has been providing conflicting signals. Recent state figures have highlighted the growing disparity in wage growth between the public and private sectors. Simultaneously, surging unemployment rates are creating a conundrum for the BoE’s discussions.
The UK’s public sector wage growth has surged to 7.9%, a figure that stands in stark contrast to the private sector’s more modest increase of 3.9%. This gap is ironic in light of growing concerns over the durability of wage growth in changing economic climate. The headline overall unemployment rate in the UK is at a historic 5.1%. At the same time, the claimant count is at 20.1k, a sign of a resilient labor market despite headwinds from volatile wage growth.
To add to the wage trend complication, the UK’s average hourly earnings have blown past expectations, creating an even stickier predicament for the central bank. Market analysts think these developments could shape the BoE’s thinking and decision-making. While working with inflationary pressures, the institution needs to focus on advancing economic growth.
Across the Atlantic, the United States is preparing to release belated jobs data that includes October and November payroll figures. Forecasts expect that demand will create 25,000 to 50,000 more jobs. Economists and investors will be waiting with bated breath for this data. Much more importantly, it would make a huge difference for people who care about the Federal Reserve’s monetary policy decisions.
The overall international economic environment continues to be difficult, especially for the eurozone’s manufacturing sector, which has fallen into contraction territory. Germany’s manufacturing index has fallen to 47.7, the largest decline in ten months. This slump is exacerbated by a dramatic fall in new orders, which experienced the quickest decrease since January. Germany’s dismal performance forces immediate questions on the eurozone’s economic wellbeing. Such a scenario would have catastrophic effects on international markets.
Even through these obstacles, the future is looking more positive in other industries. The German ZEW economic sentiment survey is up to a five-month high of 45.8. This increase is indicative of a growing investor confidence in the direction of future economic conditions. That optimistic outlook is a far cry from what’s happening in the tech sector in the United States. After soaring to new all time highs, the sector pulled the markets down as well.
In the UK, the PMI survey reported an explosion of new orders. While labor costs have clearly been flat, input costs overall and prices charged jumped in their scale factor. Increasing input costs only adds to the burden on businesses and what consumers are dealing with. This setting might rip off the bandage to introduce renewed inflationary worry.