The surprise rise in unemployment revealed by last week’s labour market figures might be just a blip. However, the fact that both main measures of unemployment rose makes it harder to dismiss this as just volatility in the data. And the pace of claimant count falls has been slowing for a while.
Perhaps unemployment is simply reaching its natural floor, meaning that the recent pick-up in wage growth will continue and the MPC should raise interest rates sooner rather than later. But we think it is more likely that improving productivity is allowing firms to produce more without hiring more workers. In that case, there is still no rush to raise interest rates.
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