Chart of the month - October
UK job vacancies show no sign of a Brexit chill
A vote for Brexit would be, we were warned, akin to a vote for recession and an implosion in the labour market. There were headlines that multinational corporations, especially in financial services, would relocate their headquarters elsewhere and reduce UK headcount substantially. A striking remark came from Mark Carney, who warned that 250,000 people would lose their jobs over the following two years because of an economic slump in the aftermath of the UK's EU referendum.
A good way to gauge if there has been a negative response from the supply side of the economy is to look at the official job vacancy figures produced by the Office of National Statistics, because the most immediate way that employers’ concerns about the economy can be expressed is through a reduction in jobs being advertised. The trend in vacancies softened slightly during the opening months of the year but was still hovering around record-high levels in the run-up to the referendum. We have now received three monthly job vacancy reports since the Brexit vote, all of which have shown considerable resilience. There was actually a fractional pickup in job vacancies in September versus June, contrary to the warnings of a collapse in hiring.
Although we are still in the early stages of the reaction to the Brexit vote, UK labour market data are showing no signs of a visible negative impact. With the Brexit vote coming as a shock to many companies, hiring plans may indeed be put on hold as they evaluate strategy. According to the Bank of England Agents’ hiring intentions survey, there are downside risks to hiring in the services sector. On the positive side, hiring intentions in the manufacturing sector have become less negative post-Brexit vote as the slump in sterling has boosted exporters’ competitiveness.
Given the unprecedented nature of Brexit, it will be important to closely monitor upcoming data. Undeniably, downside risks have increased. The potential damage to confidence and rising uncertainty caused by the possibility of a “hard” Brexit may lead to cuts in investment and hiring plans, with the impact likely more prominent in financial services if companies lose their “passporting” rights in Europe. It hardly needs stating that a long and bumpy road lies ahead, or that it will be some while before we gain any real insight into the UK’s eventual relationship with the EU. During this period there will be rumours, grand-standing, threats, claims and counter-claims, all of which will cause increased uncertainty. Indeed, the uncertainty may be more detrimental to economic activity than the eventual outcome. Taking a more balanced view, although we may see a hiatus in the labour market in the near-term, we believe the consequences of the Brexit vote are unlikely to be as disastrous as some predicted.
Janet Mui, CFA is the global economist at Cazenove Capital, the wealth management division of Schroders. Janet is responsible for the formulation and communication of Cazenove’s top-down views. She is a member of the investment committee that oversees strategic and tactical asset allocation at Cazenove. Janet is also the macro spokesperson and a regular commentator at major media outlets including the BBC, Bloomberg and CNBC.
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