The report showed the ILO unemployment rate fell in the three months to August to a seven-year low of 5.4%. The sole driver was a rise in the employment rate, as the participation rate was steady. On the wage front, the annual growth of average weekly earnings excluding bonuses eased slightly from the previous six-year high but remained strong at 2.8%. In manufacturing, the same measure for wage growth continued to lag that for the whole economy but picked up to a nine-month high of 1.5%.
Last week, the minutes of the BoE Monetary Policy Committee meeting indicated members were a little less worried about developments in China than they had been previously, suggesting they remain on track to start raising official interest rates early next year. BoE Governor Mark Carney previously said the MPC is likely to start think about increasing interest rates at around the turn of this year.
Despite the threat of interest rates rising in early 2016, higher borrowing costs aren’t at the top of UK manufacturers’ concerns. The export environment is very challenging, thanks to slower economic growth in emerging markets, the weak recovery in the euro zone, and the strength of the pound against the euro. Also, the Brent crude oil price remains relatively low, discouraging demand for investment goods in the oil and gas sector. Furthermore, upcoming decisions in the Spending Review in relation to support for exporters will be crucial in supporting manufacturers’ confidence in the year ahead.
The next major event for UK monetary policy is the BoE’s second-ever “Super Tuesday” – involving the simultaneous release of the MPC’s decision, minutes of the meeting, and updated quarterly forecasts - on November 5. The Bank’s most recent forecasts showed that the annual inflation rate was expected to rise to 2.1% in the fourth quarter of 2017, slightly above its target of 2% in around two years’ time. If the BoE's inflation forecast for late 2017 is revised down in November, interest rates will be likely to stay low for longer.