Businesses continue to favour hiring over capex

The latest data suggest that while firms are reluctant to increase capital expenditure, they are nonetheless continuing to expand their workforces. With the unemployment rate below 5%, however, the current pace of hiring is unlikely to be sustained for much longer. Indeed, the number of firms now reporting difficulties in finding suitably qualified workers suggests that they may soon have to offer higher pay to fill vacancies. Given the news last week that labour productivity has declined over the past 12 months, even a small acceleration in wage growth could easily pass through into higher price inflation.