Ms Laura Weymes:

Although the levels were falling, what is happening under the line in terms of labour supply is that we see the beginning of a pick-up and positive growth in labour supply so that is constraining an otherwise sharper decline in the rate of unemployment. We will look in a little more detail at those drivers in the coming slides.

Slide 20 looks at what has been happening in terms of average wages over the last couple of quarters. For the first half of this year, there was an average wage growth of 1%, although that disguises what is happening between the public and private sectors. All of the recovery and wages are predominantly driven in the private sector where they have been growing at 1.4%, as opposed to a slight contraction on the public side. In terms of the sectoral colour of what happened in the first half of the year, there has been some quite significant wage strength in certain sectors - the wholesale, retail and trade sectors were up 2.1% in the first half of the year. There was also some evidence of wage strength in the ICT and administration sectors.

The next slide informs our outlook for the labour market, particularly the employment volume projections for this year. The chart on the left combines what we have seen in terms of the change in employment volumes contrasted with what the vacancy rate suggests. A two-quarter lag of the vacancy rate operates as quite a good predictor for volume growth in employment in a given quarter. The sharper decline in the number of vacancies relative to the contraction in employment volumes over 2009 and 2010 in the chart points to evidence of labour hoarding during the crisis. The pick-up implied in vacancy rate data, certainly for the first half of this year, underpins our outlook for employment growth for the second half of this year of about 2.8%.

The next slide shows our outlook for the pick-up in labour supply. There will be an uptake of about 15,000 in volume terms for 2015. This is split broadly evenly between contributions from participation rate pick-up and also from the demographic channel.

In 2014 there was quite a significant drag coming through the participation rate effect but that is lifting and turning positive for the remainder of the forecast horizon.

An overall wage bill projected in 2015 at just under 5% is driven by a small positive contribution from the pick-up in hours worked, as we might anticipate, given the cyclical recovery in the labour market. There will be a slightly stronger contribution from wage growth in 2015 and 2016.