The British economy is showing signs of improvement since the country voted to leave the European Union on June 23, at least as far as job creation is concerned.
Figures released Wednesday showed that 174,000 more people were working in the three months from May to July than in the previous three months. And the total was nearly 560,000 higher than in the same period a year ago. The employment rate in July stood at 74.5 per cent, the highest since records began in 1971.
The number of people out of work also fell by 39,000 from the previous three months and dropped by 190,000 year over year. The unemployment rate remained at 4.9 for the three months and fell to 4.7 per cent in July. Britain’s jobless rate is now half that of the euro zone.
The figures were largely in line with economists’ expectations, but they sent sterling up 0.27 per cent to $1.322 against the U.S. dollar. However, many economists have been surprised at the resiliency of the U.K. economy since the referendum.
The main message from the jobs report “is that it is business as usual after the referendum,” said Alan Clarke, head of European fixed-income strategy at Bank of Nova Scotia. “Clearly, there are risks that this is the calm before the storm. But for now there doesn’t seem to be any storm clouds on the horizon.”
Added Thomas Laskey, an investment manager at Toronto-based Aberdeen Asset Management: “There’s no real sign of post-referendum blues in these numbers. A lot of them cover the period before the referendum but even the jobless claims numbers, which are more recent, only show a tiny increase.”
There are still plenty of reasons to be cautious. Wage growth slowed to 2.1 per cent during the three months from 2.3 per cent in the previous period. That’s a concern, given the drop in the value of the pound since the referendum, which is expected to push up inflation in the months to come. And the full impact of Brexit won’t likely be known until the country actually leaves the EU, which could be years away.
“Our expectation is that from here we will start to see a moderation in employment growth from buoyant levels,” said Sam Hill, senior U.K. economist at Royal Bank of Canada’s investment arm, in London. “That is unlikely to be helpful for nominal average earnings growth, already struggling to break meaningfully above 2 per cent [in the three months year over year]. Taking into account our expectations for rising inflation too, the outlook for real income growth isn’t particularly encouraging.”
John Hawksworth, chief economist at PricewaterhouseCoopers in London, noted that “unemployment tends to be a lagging indicator, as companies will take time to adjust their hiring plans to the post-referendum world. So it will be some months before we can reach firm conclusions on the labour market impact of the Brexit vote.”
The British government has indicated that it will trigger the exit mechanism in the EU treaty in early 2017, which will begin two years of negotiations. The government hasn’t provided details about what kind of deal it wants and it’s unclear if it will be possible for Britain to keep unfettered access to the EU market without accepting the free movement of EU citizens, something Brexit backers oppose.
On Tuesday, European Commission president Jean-Claude Juncker said the EU “is, at least in part, in an existential crisis” because of Brexit. “Never before have I seen such little common ground between our member states. So few areas where they agree to work together,” he added in his annual speech to the European Parliament.
Mr. Juncker urged Britain to begin exit talks quickly and he said the U.K. would not be given “à la carte” access to the EU’s single market. The free movement of workers “is as much a common European value as our fight against discrimination and racism,” he said.Report Typo/Error