Inflation Report February 2017 Supply and the labour market

Chart 3.1 The unemployment rate is projected to rise slightly Unemployment rate and Bank staff’s near-term projection(a) (a) The magenta diamonds show Bank staff’s central projections for the headline unemployment rate for the three months to September, October, November and December 2016, at the time of the November Report. The green diamonds show the current staff projections for the headline unemployment rate for the three months to December 2016, January, February and March 2017. The bands on either side of the diamonds show uncertainty around those projections based on one root mean squared error of past Bank staff forecasts for the three-month LFS unemployment rate.

Chart 3.2 Both vacancies and redundancies have been flat in recent months (a) Excludes vacancies in agriculture, forestry and fishing. Data are up to December 2016. (b) Data are up to November 2016.

Chart 3.3 The participation rate has been fairly stable over 2016 Labour force participation rate(a) (a) Percentage of 16+ population. The diamond shows Bank staff’s projection for 2016 Q4, based on data to November.

Chart 3.4 Average hours worked are expected to have fallen in 2016 Q4 Average weekly hours worked(a) (a) The diamond shows Bank staff’s projection for 2016 Q4, based on data to November.

Chart 3.5 The long-term unemployment rate has continued to fall Unemployment rates by duration(a) Sources: Labour Force Survey and Bank calculations. (a) The number of people unemployed in each duration category, divided by the economically active population. Dashed lines are averages from 2002 to 2007.

Chart 3.6 Hourly productivity is likely to have risen sharply, but the boost to growth is expected to be temporary Measures of labour productivity(a) (a) GDP is based on the backcast for the final estimate of GDP. The diamonds show Bank staff’s projections for 2016 Q4, based on labour market data to November.

Tables

Table 3.A Wage growth remains subdued Annual wage growth Sources: Bank of England, Incomes Data Services, the Labour Research Department, ONS, XpertHR and Bank calculations. Figures for 2016 Q4 are data for the three months to November. (b) Whole-economy total pay excluding bonuses and arrears of pay. (c) Percentage points. The bonus contribution does not always equal the difference between total average weekly earnings (AWE) growth and AWE regular pay growth due to rounding. (d) Average over the past twelve months, based on monthly data.

Table 3.B Employment growth has slowed Employment growth and survey indicators of employment intentions and recruitment difficulties Sources: Bank of England, BCC, CBI, CBI/PwC, ONS and Bank calculations. (a) Changes relative to the previous quarter. Figures for 2016 Q4 are data for the three months to November. (b) Other comprises unpaid family workers and those on government-supported training and employment programmes classified as being in employment. (c) Measures for the Bank’s Agents (manufacturing and services; employment intentions only), the BCC (non-services and services) and CBI (manufacturing, financial services and business/consumer/professional services; employment intentions also include distributive trades) are weighted together using employee shares from Workforce Jobs. The BCC data are non seasonally adjusted. Agents data are last available observation for each quarter. (d) The scores refer to companies’ employment intentions over the next six months on a scale of -5 to +5. (e) Net percentage balance of companies expecting their workforce to increase over the next three months. (f) The scores are on a scale of -5 to +5, with positive scores indicating greater recruitment difficulties in the most recent three months compared with the situation a year earlier. (g) Percentage of respondents reporting recruitment difficulties over the past three months. (h) Balances of respondents expecting skilled or other labour to limit output/business over the next three months (in the manufacturing sector) or over the next twelve months (in the financial services and business/consumer/professional services sectors).

Table 3.C Monitoring the MPC’s key judgements

Why has wage growth remained subdued?

Chart A Wage growth has failed to pick up in line with past projections Wage outturns and MPC forecasts(a) (a) Four-quarter whole-economy AWE growth.

Chart B Wage forecast errors have tended to be on the downside, and by broadly similar amounts MPC forecast errors for wage growth one year ahead(a) (a) Four-quarter whole-economy AWE growth.

Chart C Other factors, in addition to weak productivity, have weighed on wage growth in recent years Stylised decomposition of four-quarter wage growth(a) (a) Average whole-economy AWE growth. Productivity per worker is based on the backcast for the final estimate of GDP. The decomposition assumes a one-for-one relationship between productivity growth and wage growth over these periods.

Chart D Wage growth has been weak relative to the unemployment rate Wage Phillips curve: wages and unemployment Whole-economy AWE total pay excluding bonuses and arrears of pay. Percentage change on a year earlier. 2016 Q4 diamond shows data for the three months to November.