UK: Good news on the public finances, pay growth building – Capital Economics

The strong set of labour market figures should dispel concerns that the recent weakness was a sign of things to come for UK economy, according to Ruth Gregory, UK Economist at Capital Economics.

Key Quotes

“Employment rose by a solid 88,000 in the three months to December, leaving the annual rate at a still-strong 1%. Admittedly, this was below the consensus expectation for a larger 173,000 increase and a rise in the participation rate pushed the unemployment rate up from 4.3% to 4.4%. However, pay growth seems to be starting to benefit from the recent strength of jobs growth at last. Indeed, annual growth rate of regular pay rose from 2.3% to 2.6% and with the latest pay settlement surveys still strong, a further acceleration in wage growth is in prospect.”

“Meanwhile, there was further good news on the public finances. January’s surplus of £10.0bn on the PSNB ex measure was the second-highest surplus on record since the data began in 1993. Admittedly, the surplus was lower than last year’s £11.6bn. But this was always likely to be the case, as self-assessment tax receipts collected in January 2017 were temporarily boosted by changes in the dividend tax rate. Barring a large deterioration in the final two months of the year, then, borrowing still looks on course to undershoot the OBR’s full-year forecast, of £49.9bn, perhaps by as much as £10bn. But having confirmed that there won’t be any tax or spending changes announced at the Spring Statement on 13th March, for now the Chancellor seems to be resisting calls to spend this cash.”