Royal Bank of Scotland : Jobs Divide - Economics Weekly

Britain's job market is in rude health... In the three months to January, employment increased by almost 100,000 taking the proportion of people who are in work to 74.6%, yet another record high. The unemployment rate fell to 4.7%. When it was last that low Oasis - remember them? - were at Number 1. Vacancies and hours worked increased while redundancies fell. Despite buoyant labour demand, wage growth slipped to around 2%. On current trends it won't be long before prices are growing faster than pay.

…but there's still room for improvement. UK-wide figures like these disguise divergences, some of which are pretty persistent. In the South East and South West the employment rate exceeds 78%, high by any standards. What's more, employment in those regions continued to grow much faster than in the rest of the UK. In contrast, in the North East and Northern Ireland the employment rate hovers around 70%. If they could match the best performer, Northern Ireland would have an extra 110,000 people in work and the North East more than 130,000.

Playing catch-up. What chance is there of other regions closing this performance gap? The regional PMIs show some cause for optimism. Firms in the North West and Yorkshire & the Humber are the two most optimistic regions for business prospects in the year ahead. Meanwhile sentiment towards current business conditions slipped in London and the South West. Top of the table for output growth last month was the West Midlands, closely followed by Wales. Is this the much talked about rebalancing of the UK economy? Possibly, but for the good of growth overall we need the populous regions of London and the South East to perform strongly as well.

Pulling apart. The house price gap between England's most and least expensive areas is both wide and widening. The cheapest is a village in County Durham, with a median house price of £24,500, about the median annual pay for the region. The most expensive is within Westminster, as it probably has been ever since Edward the Confessor decided it looked a nice place to build a home with accompanying Cathedral. Here the median price was £2,920,000. According to Google Maps, it's 270 miles up the M1/A1 from Westminster to Durham, so on this (slightly silly) measure house prices drop by almost £11,000 a mile on the road to County Durham.

Power of Three. The markets were as good as 100% certain the Fed would raise rates last week for only the third time since it began hiking in late 2015. It duly did so by 25bps to between 0.75 and 1%. And the Fed's forecast for the remainder of the year remained at three more hikes. Some were expecting it would signal four hikes given confidence strewn comments regarding the health of the economy and labour market by Fed officials in recent weeks. But even three hikes will require plenty of good data on growth, jobs and wages. The US economy needs to keep delivering.

Familiar. Jobs and consumer confidence are certainly delivering. After the previous week's robust payrolls figure, last week consumer confidence reach the highest level since 2000. But is it all translating into growth? A closely-watched US GDP tracker is predicting Q1 growth of below 1%. Recent years have often seen a disappointing start on the growth front.

Unexpectedly interesting. Whilst the Fed was universally expected to raise rates last week, the Bank of England was set to do nothing at all. Both were proved right, but one member of the MPC broke from the pack and voted to raise interest rates to 0.5%. Kristin Forbes seems to have concluded that strong consumer spending means the economy can cope with higher rates. Incredibly that action doubles the number of current MPC members who have ever voted to raise rates, from one to two! Is this the start of more votes to raise rates on the MPC? Unlikely. Kristin Forbes leaves the MPC after its June meeting this year so has only two more occasions to convince her colleagues.
Hipster economics. Each year the Office for National Statistics updates the basket of goods and services it uses to track inflation. This year's additions were heavily focused on drink and had a particularly modern feel to them. Gin returned to the inflation basket, reflecting its new status as a £1bn market in the UK. Flavoured cider also arrived, alongside 'non-dairy milk drinks' (think soya or almond milk). And it wasn't just comestibles, cycling helmets won a place too. 'But where is the craft beer?' I hear you cry. Good news, it joined last year.

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