UK Unemployment falls

UK employment growth in the three months to February rose by 55,000, including a reduction in the number of self-employed workers by 18,000. This caused a fall in the unemployment rate to 4.2% from 4.3% the month before, making it the lowest rate since 1975. The unemployment rate is now well below the Bank of England’s estimate of equilibrium unemployment and appears to be putting upward pressure on wages. The growth in regular pay (ex. Bonuses) increased from 2.6% to 2.8%, and business surveys indicate that recruitment difficulties are building, possibly leading to accelerating growth in the future.

UK inflation

UK inflation has decelerated sharply, with CPI dropping from 2.7% in February to 2.5% in March, significantly below expectations. The largest downward contributions came from clothing and tobacco prices. This may mean that the fall is slightly deceptive as the latter did not have its usual post-budget boost to duty in the Spring budget, although it is reasonable to expect that this will come through in the autumn. Falling inflation and rising wage growth mean that UK consumers will see a sharp return to real wage growth. This should provide some respite for retailers as the propensity to spend returns as well as increasing the ability for individuals to manage debts.

US Retail sales

US retail sales came in stronger than expected in March, with a 0.6% m/m gain. However, this was driven predominately by the 2% m/m jump in auto sales, as well as a smaller than anticipated fall in gasoline sales. For the first quarter, it is expected that retail sales will have grown by around 1% (annualised). However, the recent tax cuts, real income growth and the strong employment market should lead to an acceleration in the second quarter. Weaker retail sales may also lead to poorer overall GDP figures for the first quarter, possibly slowing down to as low as 2% on an annualised basis. This may make the Federal Reserve slow their current path of interest rate rises until more positive data comes through.

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