Inflation Report August 2016 Supply and the labour market

Chart 3.1 Many survey indicators of employment softened ahead of the referendum, and those available since have fallen further Survey indicators of employment intentions and reported changes in employment (a) Sources: Bank of England, BCC, CBI, CBI/PwC, Manpower, Markit/CIPS, ONS, REC and Bank calculations. (a)Measures for the Bank’s Agents (manufacturing and services), the BCC (non-services and services), CBI (manufacturing, financial services, business/consumer/professional services and distributive trades) and CIPS (construction, manufacturing and services) are weighted together using employee shares from Workforce Jobs. The Manpower and REC data cover the whole economy. The BCC data are non seasonally adjusted. (b)Net percentage balance of companies expecting their workforce to increase over the next three months. (c)End-quarter observation. The scores refer to companies’ employment intentions over the next six months. The diamond for Q3 shows data for July. (d)Quarterly average. Recruitment agencies’ reports on the demand for permanent staff placements. (e)Quarterly average. Companies’ reported change in employment compared with the previous month. The diamond for Q3 shows data for July.

Chart 3.2 Following the referendum result, firms expect to revise down recruitment plans Post-referendum surveys of the expected effect on recruitment of the vote to leave the European Union (a) Sources: Deloitte, Institute of Directors and Bank calculations. (a)The survey questions are shown in footnotes (b) to (d), together with the mapping from the answers to the bars shown on the chart. Only the Institute of Directors survey asked about redundancies. (b)Following the vote to leave the EU, what effects do you expect on hiring over the following twelve months? Substantially increase (i); Slightly increase (i); No effect (ii); Slightly reduce (iii); Substantially reduce (iv). (c)Overall how do you think a UK exit from the EU will affect your business’s decisions on hiring over the next three years? Increase significantly (i); Increase somewhat (i); No change (ii); Decrease somewhat (iii); Decrease significantly (iv). (d)How will the result of the referendum affect your primary organisation’s hiring intentions? The pace of hiring will increase (i); We will continue hiring at the same pace (ii); We will continue hiring, but at a decreased pace (iii); We will freeze hiring new staff (iv); We will make redundancies (v); Not applicable (ii); Don’t know (not shown on chart; 9% of firms responded with this option).

Chart 3.3 Both average hours and employment tend to fall in economic slowdowns GDP growth and decomposition of growth in total hours worked Sources: Labour Force Survey and Bank calculations. (a)Diamond and light bars are Bank staff projections for Q2, based on data to May. (b)Percentage changes on a year earlier. (c)Chained-volume measure at market prices, based on the backcast for the final estimate of GDP.

Chart 3.4 The rates at which people move between employment and unemployment had broadly normalised in 2016 Q1 Flows between employment and unemployment (a) Sources: Labour Force Survey (LFS) and Bank calculations. (a)Two-quarter averages. Based on total LFS employment and unemployment of people aged 16–64.

Chart 3.5 Unemployment is expected to be around 5% in the near term Unemployment rate and Bank staff’s near-term projection (a) (a)The magenta diamonds show Bank staff’s central projections for the headline unemployment rate for March, April, May and June 2016, at the time of the May Report. The green diamonds show the current staff projections for the headline unemployment rate for June, July, August and September The bands on either side of the diamonds show uncertainty around those projections based on one root mean squared error of past Bank staff forecasts for the three-month LFS unemployment rate.

Chart 3.6 Companies’ capacity pressures have eased on average Survey indicators of capacity utilisation (a) Sources: Bank of England, BCC, CBI, CBI/PwC, ONS and Bank calculations. (a)Measures are produced by weighting together measures from the Bank’s Agents (manufacturing and services), the BCC (non-services and services) and the CBI (manufacturing, financial services, business/consumer/professional services and distributive trades) using shares in nominal value added. The BCC data are non seasonally adjusted. The diamond for Q3 shows data for July.

Chart 3.7 Companies’ recruitment difficulties have eased Agents’ scores on recruitment difficulties (a) (a)Observations on a scale of -5 to +5, with positive scores indicating greater recruitment difficulties in the most recent three months compared with a year earlier.

Chart 3.8 Long-term unemployment has been falling towards its pre-crisis average rate Unemployment rates by duration (a) Sources: Labour Force Survey and Bank calculations. (a)The number of people unemployed in each duration category, divided by the economically active population. Dashed lines are averages from 2002 to 2007.

Chart 3.9 The number of part-time workers seeking full-time work remains elevated Part-time workers who could not find full-time work (a) Sources: Labour Force Survey. (a)Number of people reporting to the LFS that they are working part-time because they could not find a full-time job, as a percentage of LFS total employment. Rolling three-month measure. First data point is May 1992.

Chart 3.10 Productivity growth has been subdued in recent years Hourly labour productivity (a) (a)GDP is based on the backcast for the final estimate of GDP. The diamond shows Bank staff’s forecast for 2016 Q2.

Tables

Table 3.A Growth in the number of employees has eased since 2015 Change in employment, and vacancies (a)Unless otherwise stated. (b)Changes relative to the previous quarter in thousands. Figures for 2016 Q2 are data for the three months to May (c)Other comprises unpaid family workers and those on government-supported training and employment programmes classified as being in employment. (d)Excludes vacancies in agriculture, forestry and fishing. Average is 2001 Q2 to Figure for 2016 Q2 shows vacancies in June as a percentage of the number of people in the labour force in the three months to May.

Table 3.B Monitoring the MPC’s key judgements