James Smith, a Developed Market economist at ING, suggests that the latest UK jobs numbers won't sow any seeds of doubt among investors, who are pricing a strong likelihood of a rate hike this year.
"If markets are right, we may only be a matter of weeks away from the first Bank of England rate hike. That’s undoubtedly bold, but at face value there’s little in the latest UK jobs report that will sow any fresh seeds of doubt in the minds of investors."
"Hiring demand is clearly strong, and the rebound in employment in the hardest-hit consumer services sectors continues apace. Wage growth is around pre-virus levels, if ONS estimates of underlying trends are to be believed. And so far, there’s no discernible increase in redundancies ahead of the furlough scheme ending."
"Still, we suspect caution will prevail at November’s Bank of England meeting. True, there hasn’t been much push back from MPC members in light of recent market pricing. But before hiking the Bank will want to be sure that a) wage growth is going to be sustained and more importantly, widespread, and b) that the furlough scheme hasn’t resulted in a material increase in jobs market slack."
"The reality is that policymakers are unlikely to have the answer to either question before the next meeting."
"For now, we’re penciling in the first rate rise for May 2022, but we accept we may soon need to bring that forward depending on what Bank of England speakers say about market pricing over the coming few days."