Slack is opening up in the UK labour market, strengthening the case for a rate cut regardless of Brexit developments.

Total hours worked (reported as a three-month moving sum) fell further in August and are down 0.5% from an April peak. This casts doubt on current official estimates showing monthly GDP rising above its prior February / March high in July / August.

Falls in employment and hours worked had been signalled by a downturn in vacancies, which peaked in January (three-month moving average). The decline continued in September, albeit at a slower pace, while redundancies in the three months to August were the highest since 2016 – see first chart.

The unemployment rate ticked up to 3.9% over June-August and would have risen by more but for a contraction of the labour force, reflecting an increase in “inactivity” – second chart.

Benefit claims data suggest a further pick-up. The old claimant count measure has been distorted by the roll-out of universal credit but the Department for Work and Pensions calculates an adjusted series, based on modelling what the count would have been if the current benefits system had been in place since 2013. This “alternative” count bottomed as long ago as February 2018, with a three-month increase of 43,000 in August the highest since inception – third chart.

Chinese September monetary numbers are a mixed bag but will probably be interpreted positively by the market.

The monthly flow of total social financing was above expectations, while six-month growth of the outstanding stock returned to its mid-year high – see first chart.

The bad news is that six-month narrow money growth fell back sharply. Note that the latest data point for true M1 incorporates an estimate of household demand deposits, which are released several days after the headline money numbers.

As the chart shows, growth rates of TSF and narrow money usually move in the same direction, making the September divergence difficult to interpret. The money numbers are more volatile, suggesting playing down the apparent negative signal and waiting to see if there is a rebound in October (or a relapse in TSF).

Broader money measures don’t help to clarify the issue. Six-month growth of headline M2 was slightly higher but growth of the preferred measure here, which excludes deposits of financial institutions, was unchanged after its recent fall, echoing the cautionary signal from narrow money – second chart.

From a longer-term perspective, money trends appeared to be responding to policy easing in early 2019 but the pick-up aborted after the failure of Baoshang Bank in May, which disrupted the interbank market and led to a reduction in credit supply to private firms. Consistent with this narrative, the corporate financing index from the Cheung Kong Graduate School of Business monthly survey reached a record high in April and plunged through August, recovering marginally in September – third chart.

Global six-month narrow money growth is estimated to have picked up significantly in September despite the disappointing Chinese number, mainly reflecting a US surge, part of which pre-dated the Fed’s repo operations – fourth and fifth charts.