Jobs data in UK and US stoke interest-rate fears

Click to follow
The Independent Online

Fears of further hikes in interest rates on both sides of the Atlantic rose yesterday after labour market data pointed to growing inflationary pressure.

Fears of further hikes in interest rates on both sides of the Atlantic rose yesterday after labour market data pointed to growing inflationary pressure.

In the United States unemployment fell to 3.9 per cent in April, the lowest rate in 30 years. Average earnings - a closely watched gauge of wage pressures - rose by 0.4 per cent after a similar gain in March. At the same time, a UK report showed wages for British workers rising at their fastest for two years.

The drop in the US jobless rate below 4 per cent and continued wage pressure pushed US bond prices down. Economists said the data would be a focus for the Federal Reserve when it meets on 16 May.

Mark Cliffe, an economist at ING Barings, said the US data were "slightly stronger" than forecast. "This is likely to reinforce expectations of a 50 basis point rate rise at the next meeting and there may be at least one more rate rise to come after that," he said.

The markets have discounted a half-point hike for some time. In early trading on Wall Street, the Dow Jones index was up almost 40 points.

The UK's Recruitment and Employment Confederation said a growing shortage of available workers was forcing companies to bid against each other to recruit and keep staff.

It said demand for permanent staff rose in April at the fastest rate since October 1997. Skills shortages last month were at their highest this year, boosting permanent staff salaries at the strongest pace since May 1998.

Shortages of both permanent and temporary staff also reached peaks so far this year. The REC said the report signalled "continued tightness in the labour market". The report is the latest to point to pressures in the UK labour market. Official figures show unemployment at a 20-year low, with more people in work than ever before. Average earnings increases are running at 6 per cent, three times the rate of inflation.

Despite Thursday's decision to keep rates on hold, analysts are not convinced they have peaked. Economists await the Bank's quarterly inflation report next week and earnings data on 17 May.

The Bank held off raising rates because of the strength of sterling, which is curbing growth in the export industries and cutting the cost of imports. The latter factor, allied to strong competition on the high street, has prevented retailers from putting up prices, so helping depress inflation. More evidence of high-street deflation came in a report by the British Retail Consortium. It said shop prices fell 0.1 per cent in April, leaving annual deflation of 0.8 per cent.

The fall came despite raises in tobacco and alcohol taxes in the Budget, which only partially offset discounting in areas such as clothing. "At a time of rising average earnings, customers are continuing to see prices in the shops falling," the BRC said.

Comments