UK unemployment fell to its lowest rate since the early 1970s this summer even as the economy stalled, according to official data that will reinforce policymakers’ fears that labour shortages are fuelling inflation.
The Office for National Statistics said on Tuesday that the unemployment rate sank to 3.6 per cent in the three months to July, down 0.2 percentage points from the previous quarter and the lowest since 1974.
But this was not because more people were in work. Instead, there was a new jump in the number of people who said they were not working because they were studying or had a long-term health condition — which took the economic inactivity rate up 0.4 percentage points to 21.7 per cent, well above its pre-pandemic level.
Meanwhile the employment rate fell by 0.2 percentage points, to 75.4 per cent.
The rise will trouble policymakers, given the acute pressures on household incomes that would usually be expected to draw more people into the workforce in order to make ends meet.
“Instead of the cost of living crisis tempting people back into work, more people are exiting the jobs market altogether,” said Gregory Thwaites, research director at the Resolution Foundation, a think-tank.
Bank of England governor Andrew Bailey has warned that a shrinking workforce will make price and wage pressures more persistent, and the latest figures will bolster the case for the Monetary Policy Committee to continue raising interest rates aggressively when it meets next week for a decision delayed by the Queen’s death.
“The Bank of England has much more work to do,” said Ruth Gregory at the consultancy Capital Economics, while James Smith, economist at ING, said the data would “provide further ammunition for Bank of England hawks to push ahead with further tightening”.
Tony Wilson, director of the Institute for Employment Studies, said the figures “should be sounding alarm bells in government”, showing that inactivity due to ill health was holding back growth and pushing up inflation. “If we don’t do more to help more people into work, then any tax cuts will just lead to even higher inflation,” he added.
The data showed wage growth strengthened in the three months to July, with average total pay, including bonuses, 5.5 per cent higher than a year earlier.
But Yael Selfin, economist at KPMG, said this would be “little consolation to workers” whose pay packets were being squeezed by soaring inflation, with total pay down 2.6 per cent in real terms and regular weekly earnings down 2.8 per cent.
Public sector workers — whose annual pay deals were announced by government only at the end of July — have been especially hard hit, with their regular weekly pay up by just 2 per cent in nominal terms, set against pay growth of 6 per cent in the private sector.
There were also signs that the downturn in the economy was starting to make employers more cautious about taking on new staff, with the number of vacancies falling to 1.26mn in the three months to August — still high by historical standards, with as many posts vacant as there were people out of work, but the biggest drop since mid-2020.
The ONS said a growing number of employers responding to its survey had announced recruitment freezes, with the largest falls in vacancies seen in the information and communication industry, and in professional, scientific and technical activities — although labour shortages remained acute in health and social work, and in hospitality.
Source: Economy - ft.com
