UK Labour Market: If Inflation Is Conflict

The UK labour market is cooling rapidly with unemployment rising to 5% and pay growth slowing more than anticipated. This trend supports the view that labor costs are no longer the primary driver of UK inflation, placing the focus on corporate margin preservation.

Key Takeaways

• 1.The UK unemployment rate has returned to 5%, indicating increasing labor market slack.
• 2.Pay growth is subsiding faster than expected, with private sector regular pay at 3.04% 3M/Y, which Morgan Stanley deems target-consistent.
• 3.The BoE is expected to maintain its current stance in June (8-1 vote for hold) despite the build-up of slack, as it continues to monitor energy shocks and corporate pricing behavior.

Table of Contents

• Pay growth
• Inflation as conflict
• Volumes | More ONS uncertainty
• Downside risks
• BoE implications
• Disclosure Section
• Global Research Conflict Management Policy
• Important Disclosures

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