By Stuart Cole, Head Macro Economist, Equiti Capital
Firstly, the jump in the average weekly earnings figure for December is noteworthy as the Bank of England has already stated that the biggest danger now for inflation is the potential for rising wages to develop into a wages/price spiral, ie demand-pull inflation that can quickly become self-reinforcing. However, these earnings numbers can be erratic during what is traditionally bonus season and therefore a more accurate picture of underlying wages growth is probably seen in the ex-bonuses figure, which actually showed wages growth slowing slightly from 3.8% to 3.7%. With annual CPI in December running at 5.4% this represents a real squeeze on incomes, a squeeze that is only going to get worse in April when higher energy prices and higher taxes also kick in. It is difficult to see the strong pace of growth seen in December being maintained in such an environment over the course of 2022 and suggests the potential for a more moderate scale of tightening being delivered from the BoE this year than is currently expected in some quarters.
Secondly, the PAYE data showing employers adding just under 108k jobs in January, below expectations (133k). Interestingly, the January figure comes three months after the ending of the jobs furlough scheme, and three months would be a typical notice period for those that lost their positions. Also, the Labour Force Survey number showed employment falling -38k in December, yet the unemployment rate remain unchanged at 4.1%, suggesting another possible rise in inactivity.