…and so the Bank of England’s Quarterly Bulletin landed on our desktops with a thump on Monday. And yes, it brought with it a little bit of a mystery over the uncertain recovery of the UK’s labour markets, as the FT reported — but also a few more brief glimmers of an exit strategy for the Bank’s liquidity operations.
As far as the post-recession labour figures are concerned, ‘considerable uncertainty’ is indeed the main catchphrase to take from Renato Faccini and Christopher Hackworth’s paper. Here’s the meat:
To date, the larger fall in output [in this recession] has been associated with a smaller fall in employment, and weaker real wages, compared with the 1990s recession. In part, the unusual behaviour of the labour market is likely to reflect an increase in the flexibility of real wages relative to employment.
But other shocks, such as the response of labour supply and the exchange rate depreciation, are likely to have played a role. The adjustment in the labour market is, however, ongoing. Contacts of the Bank’s Agents have reported that they expected headcount to remain broadly stable over the coming months. But the picture may change over time and there remains considerable uncertainty about how the labour market will evolve.
In short — businesses and workers have hung on through a shallow slump during the crisis, but might be about to fall off a cliff if a wider recovery doesn’t perk up soon. Oh double-dip dear.
Bloomberg has a rather cheerier take on what the paper says about employment – a questionable one, given the reliance on survey (as opposed to real) data.
And do note that the Bulletin’s summary of a recent Monetary Policy Roundtable buttresses the post-recessionary fug hovering over the labour market:
Participants thought the outlook for the UK labour market to be highly uncertain. The muted rise in unemployment may in part reflect lags in the labour market. Some businesses may have chosen to hoard labour in the expectation of an economic recovery, which, if proved unfounded, could lead to a further rise in unemployment.
And although pay prospects remained muted, wage growth had exceeded productivity growth in Q2, suggesting that some further moderation in earnings growth may be required to prevent additional cuts in employment. The upcoming round of wage negotiations and the degree of restraint employees exerted in their wage demands would have a material influence on the outlook for employment. Finally, the planned fiscal consolidation may entail some reduction in public sector employment, which had continued to increase in recent quarters. This would put upward pressure on unemployment.
Jeepers. Does it need to be all gloom? Perhaps there’s some cheer in the Bank’s account of its liquidity operations over the last quarter. If by cheer, you mean few surprises:
The Bank’s balance sheet continued to expand, increasing from £235 billion at the end of the previous review period to £247 billion at the end of the current review period. This expansion principally reflected purchases of public sector assets under the Asset Purchase Facility (APF) following the MPC’s decision on 5 November to increase the size of the programme of asset purchases financed by the issuance of central bank reserves by £25 billion to £200 billion. Over the review period, the stock of long-term repo open market operations (OMOs) fell, reflecting reduced demand for liquidity insurance.
…which might just promise the barest slither of a way out for the Bank’s strategy — a topic of much debate on FT Alphaville recently. It’s not quite the same as the thriving discussion on quantitative easing, but as it is, the Bank reports strong interest in its recent sales of corporate bonds, and rather less interest in its commercial paper insurance schemes.
Recovery? Well — ask UK employers, first.
Related links:
Fragile recovery may push up unemployment, warns BoE – Guardian
So will we ever get off QE? – FT Alphaville
The valedictory Barker – FT Alphaville
UK employment *fall*/*fail* – FT Alphaville