December 2024 UK Jobs Report: Fragility Persists Amid Downside Risks

Unemployment, in the three months to December, unexpectedly held steady at 4.4%, marginally below the BoE's 4.5% forecast. These figures, though, must once again be taken with a pinch of salt, due to the ONS' ongoing data collection, survey, and quality issues.

Meanwhile, earnings pressures intensified over the same period. Regular pay rose 5.9% YoY at the tail end of last year, the fastest pace since last April, while overall pay (inc. bonuses) rose 6.0% on an annual basis, the fastest pace since November 2023. Such a pace of earnings growth is, clearly, incompatible with a sustainable return to the Bank of England's 2% inflation target over the medium term.

Speaking of the Bank, this morning's data is unlikely to move the needle significantly in terms of the policy outlook, as policymakers continue to place little weight on the figures, owing to the aforementioned data quality concerns. That said, risks to the labour market continue to tilt clearly to the downside, particularly as UK businesses batten down the hatches ahead of April's National Insurance hike.

While the MPC may, in ordinary circumstances, seek to ease policy more quickly in order to provide a cushion against those risks, policymakers are unable to do so at present, with inflationary pressures remaining sticky, ahead of the latest CPI figures due tomorrow morning, and with earnings growth also still at a concerning level.

Consequently, my base case remains that the 'Old Lady' will continue to deliver one 25bp cut per quarter for the remainder of this year, with the next Bank Rate cut coming in May. Risks to this base case do, however, tilt in a more dovish direction, were a labour market slowdown and subsequent demand crunch to spark a rapid pace of services disinflation, though that seems some way off at present.