The unemployment rate edged slightly lower to 4.0% with average earnings, excluding bonuses, up 3.3% y/y in November. With wage growth continuing to outpace inflation for the fifth consecutive month, the positive 1% real returns will somewhat help ease consumers’ rising living cost.

We feel the latest data has provided some comfort and reassurance that businesses are not dented with hiring due to the noises coming from Brexit. However, we are a slightly doubtful on a sustainable pace of wage growth over the next six months following the strong November figure.

We expect the Bank of England (BoE) to remain vigilant with the policy rate. Though we expect the policy rate to stay unchanged at 0.75% for 2019, there is some room for a 25bps rate hike in November to which we have placed a low probability of around 40%.

• The unemployment rate edged slightly lower in November to 4.0% from 4.1% in October. Average earnings, excluding bonuses, increased by 3.3% y/y in November. Wage growth continued to outpace inflation for the fifth consecutive month. In November, the pace at which wage growth outpaced inflation is translated in real returns as 1%. The positive real returns somewhat help ease consumers’ rising living cost.

• The latest data is giving us some comfort and reassurance that businesses are not dented with hiring due to the noises coming from Brexit. However, we feel the pace of wage increases may begin to ease. We are slightly doubtful on a sustainable wage growth over the next six months following the strong November figure.

• Though the positive labour and wage data will provide a tailwind on consumer spending, the ongoing uncertainties over Brexit will put a lid on the upside on consumer spending. Even though the possibilities of “no-deal” Brexit are fading away gradually, issues like clarity on the current Brexit timeline will keep business sentiment subdued, besides the current global economy which is slowing down.

• We expect the Bank of England (BoE) to remain vigilant with the policy rate. Though we expect the policy rate to stay unchanged at 0.75% for 2019, there is some room for a 25bps rate hike in November to which we have placed a low probability of around 40%.

Source: AmInvest Research - 23 Jan 2019