The stagnation of economic growth has not yet removed the heat from the UK labor market, according to official data on Tuesday showing the number of full-time employees at an all-time high, while the number of vacancies rose to a record high. of 1.3 million.
However, the data contained some early indications that the labor market could be on the rise, with a slowdown in hiring and rising unemployment.
Economists say that while figures support the Bank of England’s case for raising interest rates again at its meeting on Thursday, they could downplay the argument of a large increase or a tightening. aggressive of the continued policy.
The figures, published by the National Statistics Office, showed that the employment rate rose to 75.6% in the three months to April, 0.2 percentage points more than the quarter and a further increase greater than economists had predicted. This was driven by full-time employment, with part-time work and self-employment still below pre-pandemic levels.
Sandra Horsfield, an economist at Investec, said “strong labor demand. Asset Management said the data showed the “enigma” facing the BoE, as “central banks are being forced” to harden at a time when there are already clear signs that growth is slowing.
However, the data show that the dizzying pace of recruitment in recent months has slowed. Vacancies, although on record, were only slightly higher than the previous month. Unemployment rose in April and brought the three-month unemployment rate to 3.8%, slightly above the 50-year low recorded a month earlier.
“The labor market could now be at a turning point,” said Greg Thwaites, research director of the Resolution Foundation’s think tank, while James Smith, an economist at ING Investment Bank, said. We can say provisionally that there is no longer a shortage of workers, “actively worsening.”
This is partly because at least some of the people who have left the workforce since the beginning of the pandemic are now beginning to return. The ONS said economic inactivity fell 0.1 percentage points in the three months to April, as young people who had stayed in full-time education instead of starting their careers they returned in the middle of the pandemic.
Kitty Ussher, chief economist at the Institute of Directors, said this was “encouraging for companies struggling to fill vacancies” as it should make it easier to cover future vacancies and reduce inflationary pressure. He added that there are also “early signs that the labor market is starting to settle”, with a slowdown in the pace of hiring and a small increase in short-term unemployment.
Chancellor Rishi Sunak said the figures showed that the labor market remained robust, adding that helping people find better jobs was the best way to support them in the long run, even though the government it was also providing “immediate help with rising prices.”
However, inflation is now starting to hit the payroll hard. Although wage growth remains strong by historical standards, average weekly earnings were 3.4% lower in real terms than a year earlier in April, the month in which the bill limit changed. of domestic energy.
Even after including bonuses, data for a single month in April showed that total wages had fallen sharply in real terms, although inflation had remained broadly in line with inflation over the period. three months.
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The data will reinforce the reason why the Monetary Policy Committee is raising interest rates again when it meets this week. The BoE made it clear in its May forecast that it believed nominal wage growth was running at an unsustainable pace and that unemployment would have to rise if inflation returned to its 2 percent target in the medium term. .
Paul Dales of Capital Economics said nominal wage growth remained unusually strong, but evidence of a “slightly weaker labor market” could tip the MPC toward rising interest rates. interest at 25 basis points instead of 50 basis points.
However, Samuel Tombs of Pantheon Macroeconomics said it was encouraging that wage growth had stabilized and that the number of workers had begun to recover. “The labor market is still very tight, but it is not supporting nationally generated inflation enough to cause the MPC into a series of rapid rate hikes that would push the economy into a recession,” he said.