U.K. Wages Rise, Jobless Claims Fall Steeply

Signs of an improving job market in the United Kingdom are growing.  Incomes are up and jobless claims are down, while the unemployment rate remains at its lowest point in a decade. According to the Office for National Statistics, unemployment remained at 5.1% in December, despite expectations that unemployment would fall 10 basis points to 5%.

Signs of an improving job market in the United Kingdom are growing.  Incomes are up and jobless claims are down, while the unemployment rate remains at its lowest point in a decade. According to the Office for National Statistics, unemployment remained at 5.1% in December, despite expectations that unemployment would fall 10 basis points to 5%.

However, signs that the unemployment rate could decline in January are mounting. Jobless claim counts fell by 14,800 in January, far better than a 3,000 decline expected by economists. This is after a similarly strong decline of 15,200 claims in December, a highly improved revision from the previously reported fall of 4,300 claims.

Wage Gains, Demand Implications

With unemployment low and jobless claims falling, signs of a robust macroeconomic environment in the United Kingdom are bolstered by signs of steady wage growth.  The ONS reported that total pay rose 1.9% in the last quarter of 2015, at expectations and following a 2.1% increase for the months of September, October, and November. Wages fared even better than total pay, which includes bonuses and incentive pay. Total wages rose 2.0%, above 1.8% expectations and after a 1.9% rise in the months of September, October, and November.

The strong growth in wages has encouraged expectations of strong and growing GDP gains for the UK. The country’s GDP rose 0.5% in the last quarter of 2015 on a quarterly basis, up from 0.4% in the previous quarter and in-line with expectations. GDP gains on a year-over-year basis were 1.9%, following a 2.1% gain in the third quarter, leading 2015 to see 2.2% GDP growth for the entire year.

Brexit: Threat or Opportunity?

Some analysts are expecting similar growth rates in 2016 even as fears of a global recession are mounting. However, analysts have also warned that Great Britain faces political pressures that could hinder economic growth. A so-called “Brexit” in which Britain leaves the European Union could cost the country 0.5% a year of weaker industrial productivity, according to the European engineering and manufacturing group, CEEMET, which represents 200,000 manufacturers across Europe.

The report said that the impact of Britain leaving the EU “could be even greater as the analysis focuses on the industrial sector and doesn’t take into account the impact in the UK financial and wider services sector.”  British advocates for remaining in the EU, as well as industrial experts, have said this report should cause concern and make Britain think twice about leaving the EU.

Advocates for leaving the EU dismissed the report as fear mongering, noting that the European manufacturers have a financial incentive to see Britain stay in the EU and thus be subject to the same legal and regulatory restrictions. Without that, they claim, there is a possibility that greater flexibility within the manufacturing sector could make it more competitive for trade with the U.S. and China vis-a-vis Germany, who has quietly and consistently grown to dominate manufacturing trade at the expense of other European producers like Greece, Italy, and Spain.