Claimant count data may suggest first official cracks in post-Brexit economy

August 16, 2016

People enter a job centre in London August 12, 2009. British unemployment hit its highest rate since 1996 in the three months to June, official figures showed on Wednesday, while the number of people claiming jobless benefit rose broadly as expected in July.  REUTERS/Stephen Hird  (BRITAIN EMPLOYMENT BUSINESS) - RTR26MIB

Since Britain’s historic vote on June 23 to leave the European Union, the economic impact has been limited to private-sector surveys that suggest the UK is either already in a sharp downturn or just headed into a mild recession. Nothing suggest things are the same or better.

The claimant count for July, which measures the number of people seeking unemployment benefits, will help throw some light on whether Britain’s job market, which has beaten nearly all expectations over the past few years, is starting to turn.

The claimant count is the most current in a set of labour market data, most of which have been surprisingly resilient in the run up to the EU referendum.

So far, anecdotal evidence from the Bank of England’s survey of agents, as well as smaller surveys of recruitment trends suggest that hiring has slowed significantly in recent weeks.

The latest Reuters poll forecasts the change in claimant count — a figure also very closely watched in the U.S. and seen as a reliable indicator of the job market because it’s a count of real people not a representative survey — rose last month to 9,500 from 3,500 in June.

That is the highest median in Reuters polls since December 2011, when Britain’s economy was still struggling to get on a path toward lasting growth after the financial crisis of 2008, and the more recent euro zone debt crisis.

Back then, the Bank of England was conducting quantitative easing — a long-dormant asset purchasing programme it fired up once again last month after the Brexit vote after cutting interest rates to a record low.

If the data come out as expected, it could signal the start of a retreat in Britain’s impressive labour market performance. The unemployment rate is forecast to rise as high as 6 percent by the end of 2018, according to a Reuters poll last week.

The claimant count, which can be volatile month to month, has breached the 10,000 mark twice this year already.

But economists’ expectations haven’t deteriorated this much in the past 4-1/2 years, suggesting optimism is now beginning to fade.

Claimant count

An almost 13 percent fall in sterling since the vote for Brexit, which will increase the cost of Britain’s imports, has already bumped up inflation expectations among private forecasters and the BoE. Import price inflation is already surging.

But if some of the largest banks are to be believed, Britain’s labour market has probably taken the biggest hit.

Citi and HSBC predict July’s claimant count up 5,000 and 9,000, respectively, while Morgan Stanley has it up 12,000. Credit Suisse, JP Morgan and Nomura forecast a net 20,000 people probably claimed state benefits.

Victoria Clarke of Investec wrote in a note:

The claimant count data will give us an early steer on the post-referendum period, relating to July. Here we anticipate the start of slowly rising numbers of claimants, with our forecast this time around for a 10,000 rise. Indeed, we note that the recent report from the Recruitment and Employment Confederation (REC) pointed to the UK jobs market suffering ‘a dramatic freefall in July, with permanent hiring dropping to levels not seen since the recession of 2009′.

HSBC expects a slight rise in claimant count in July “as firms become more wary of hiring, given increased uncertainty.”

The rest of the labour market data due on Wednesday are for the period before the referendum. Economists polled by Reuters forecast the jobless rate stable at 4.9 percent and average earnings excluding bonus up slightly to 2.3 percent in the three months to June.

It’s still too early to say for sure how severe an impact the Brexit vote will have on the UK economy over the near-term, but being the first in a long series of data, followed by the first official report on retail sales due Thursday, the claimant count may give the impression Britain is in for a rough ride.

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