- Britain's runaway labour market is showing signs of slowing down, with unemployment rising, and job growth stuttering.
- That poses a serious threat to the UK's overall economic health, according to John Wraith of UBS.
- Rising unemployment could make Brexit even more complicated, Wraith argues.
LONDON — Britain's labour market — the country's "sole economic bright spot" — could be about to weaken significantly, according to a senior strategist at Swiss bank UBS.
Writing to clients on Thursday, UBS' John Wraith described the labour market as the "critical determinant of the UK's economic fortunes," and warned that recent data suggests tough times could be on their way.
Even before Britain voted to leave the European Union in June 2016, the UK's labour market was the jewel in the crown of the economy, with unemployment steadily falling for several years and new jobs being created at breakneck speed. In fact, the unemployment rate has fallen by such a degree in recent years that some commentators have described the situation as Britain's "jobs miracle."
But cracks have started to appear in recent data. The UK's headline rate of unemployment rose for the first time since August 2016during the most recent data period.
"While the steady and significant decline in the unemployment rate from its peak at 8.5% in November 2011 has provided reassurance thus far, there were some potential developments in the most recent data that suggest the improvement may be reaching a turning point," Wraith told clients.
One of those "developments" was the continued slowing pace of job creation, which is "volatile" but has clearly declined in the last 18 months, according to Wraith.
"From an average of around +150k 3m/3m in mid-2016, the pace has slowed to around +80-90k over the past year," he said, pointing the chart below:UBSBrexit further muddies the waters, Wraith says, as it threatens the supply of EU labour
"As well as monitoring the evolution of employment and unemployment numbers, attention needs to be paid to fluctuations in net migration flows from the EU and elsewhere," Wraith writes.
"Although no changes have yet been made to freedom-of-movement arrangements between the UK and the EU, such changes may be forthcoming in the future."
A weakening labour market would take a heavy toll on the UK's "economic and political outlook" going forward.
Here's Wraith one final time (emphasis ours):
"Even more than usual, the UK economic and political outlook is likely to be heavily dependent on the health of the labour market over the coming months and years. If it continues to strengthen, the long-awaited return to robust real earnings growth becomes more likely, and will both underpin consumption through the Brexit process, and also potentially lead to more active monetary tightening by the MPC.
"If it starts to weaken, however, the prospects for consumption will be ominous as earnings growth becomes much less likely at a time of low savings, rising borrowing costs, and high debt levels.
"The pressure would also mount politically as demands for looser fiscal policy grow, and if any rise in unemployment is deemed a consequence of Brexit, the UK's route towards leaving the EU will become even more complicated."