UK unemployment fell to a multi-decade low of 3.6 per cent last month. But this wasn’t entirely cause for celebration. High inactivity rates have seen thousands of workers leave the labour force, and the number of people out of work due to long-term sickness has increased by 350,000 since February 2020.
A tight labour market only increases pressure on the Bank of England to raise rates: the minutes of its latest Monetary Policy Committee meeting revealed ongoing concerns that nominal wages were rising “more rapidly than expected”. The next labour market release is out on 11 October.
The UK trade deficit narrowed slightly in July, but don’t expect the trend to continue: Pantheon Macroeconomics argues that this was a statistical quirk brought about by a reversal in the downward impact caused by the Queen’s Jubilee bank holiday. Senior UK economist, Gabriella Dickens, expects the UK deficit to “reach enormous proportions over the coming months'', due to a rising trade deficit in natural gas and weak export demand from trading partners. Updated figures are released on 12 October.
Eurozone trade balance statistics are out on 14 October and Berenberg economists forecast a bleak winter for eurozone trade ahead. With the US sliding towards recession and China’s adherence to its zero-Covid-19 strategy, Berenberg predicts that “for the next few quarters, global trade will likely be a headwind rather than a tailwind for the export-oriented eurozone”.
The US picture is more difficult to gauge. The trade deficit narrowed in July, but this was largely due to lower imports of pharmaceuticals, which are notoriously volatile. Capital Economics’s Paul Ashworth argues that Chinese trade data is showing a sharp decline in exports to the US. This means a corresponding dip in US consumer goods imports is set to follow when new figures are announced on 14 October.
More data from across the pond with a US retail sales release on 14 October. Buoyant retail figures would be an encouraging sign that the economy is avoiding recession, but will only make the Fed’s job harder. ING’s James Knightley argues that “with inflation proving to be far stickier than imagined, the Fed repeated that activity needs to slow much more with the door left wide open for a fourth consecutive 75bp hike in November”.
In the latest press conference, Fed Chair Jay Powell vowed to “keep at it until we are confident the job is done”, and a further 125 bps of rate hikes are expected before the end of the year. We will get a better indication of the Fed’s thinking when FOMC minutes are released on 12 October.
