Stalling economic growth has not yet taken the heat out of the UK labour market, according to official data on Tuesday that showed the number of full-time employees at an all-time high, while the number of vacancies rose to a record 1.3mn.
However, the data contained some early signs that the jobs market could be on the turn, with hiring slowing and unemployment edging up.
Economists said that while the figures supported the case for the Bank of England to raise interest rates again at its meeting on Thursday, they could lessen the argument for a big increase or for continued aggressive policy tightening.
The figures, released by the Office for National Statistics, showed the employment rate rose to 75.6 per cent in the three months to April, up 0.2 percentage points on the quarter and a bigger rise than economists had anticipated. This was driven by full-time employment, with part-time work and self-employment still below pre-pandemic levels.
Sandra Horsfield, economist at Investec, said “solid labour demand . . . in the context of red-hot consumer price inflation” would confirm the case for further monetary policy tightening, while Hugh Gimber, strategist at JPMorgan Asset Management, said the data showed the “conundrum” facing the BoE, as “central banks are being forced to tighten at a time when there are already clear signs that growth is slowing”.
However, the data showed that the breakneck pace of hiring in recent months has slowed. Vacancies, although at a record, were only slightly higher than the previous month. Unemployment rose in April, taking the jobless rate over the three months to 3.8 per cent — slightly above the 50-year low recorded a month earlier.
“The labour market could now be at a turning point,” said Greg Thwaites, research director at the Resolution Foundation think-tank, while James Smith, economist at investment bank ING, said: “We can tentatively say that worker shortages are no longer actively getting worse.”
This is partly because at least some of the people who have left the workforce since the start of the pandemic are now beginning to return. The ONS said economic inactivity fell by 0.1 percentage points in the three months to April, as young people who had stayed in full-time education rather than start their careers mid-pandemic came back.
Kitty Ussher, chief economist at the Institute of Directors, said this was “encouraging for businesses that were struggling to fill vacancies”, as it should make future job openings easier to fill and reduce inflationary pressure. She added that there were also “early signs that the labour market is beginning to settle”, with the rate of hiring slowing and a small rise in short-term unemployment.
Chancellor Rishi Sunak said the figures showed the jobs market remained robust, adding that helping people into better jobs was the best way to support them in the long term, although the government was also providing “immediate help with rising prices”.
However, inflation is now starting to hit pay packets hard. Although pay growth is still strong by historical standards, average weekly earnings were 3.4 per cent lower in real terms than a year earlier in April, the month when the cap on household energy bills changed.
Even after including bonuses, the single month data for April showed total pay had fallen sharply in real terms, though it had broadly kept pace with inflation over the three-month period.
The data will reinforce the case for the Monetary Policy Committee to raise interest rates again when it meets this week. The BoE made it clear in its May forecasts it believed nominal wage growth was running at an unsustainable pace and unemployment would need to rise if inflation was to return to its 2 per cent target in the medium term.
Paul Dales, at the consultancy Capital Economics, said nominal wage growth remained unusually strong, but evidence of a “slightly looser labour market” might tilt the MPC towards raising interest rates by 25 basis points rather than 50 basis points.
However, Samuel Tombs, at the consultancy Pantheon Macroeconomics, said it was encouraging that wage growth had steadied and workforce numbers had begun to recover. “The labour market remains very tight, but it is not supporting domestically-generated inflation enough to provoke the MPC into a series of rapid rate hikes that would push the economy into a recession,” he said.
Source: Economy - ft.com
