With less media focus than or , the British job market is leaving headlines that are as sobering about the pandemic hangover as they are worrying for its economy. The anomalies caused by the covid have left a job market so tense that its unemployment rate is the lowest in 48 years. The British are not returning to the job market despite the pressing cost of living and the main reason is that the workforce remains tight after the health crisis. The confirmation of the phenomenon can be seen in wages that continue to rise strongly, complicating life for the Bank of England (BoE) and the .
The unemployment rate in the United Kingdom stood at 3.6% between May and July, a rate lower than the 3.8% of the three previous months and the lowest percentage since 1974, the National Office of National Insurance reported on Tuesday. Statistics (ONS, in English). In a statement issued on its website, the official body indicates that the number of people with employment in the country increased by 71,000 -or just 0.2%- between the months of July and August up to 29.7 million.
The ONS has also revealed that workers’ wages, excluding bonuses, increased at an annual rate of 5.2% between May and July, well above the pre-pandemic average of around 3%. However, the fact that , its highest level in 40 years, has caused the real value of wages to fall by 2.8%, the office points out. All in all, the slower decline than in previous months.
However, the key to the report’s vault lies in the workforce. The drop in the unemployment rate has been driven by a strong increase in people classified as inactive or not looking for work. A total of 194,000 people left the workforce in the quarter, the highest number since the start of the pandemic. This inactivity rate increased by 0.4% in the quarter to stand at 21.7%. Much of this is due to record levels of long-lasting illnesses. In addition, many young people who were working have resumed their studies. The size of the UK workforce is still 250,000 less than it was before covid hit.
“On a general level, the latest UK employment figures don’t look so bad. But this low unemployment is not due to an increase in the number of people in employment, but mainly due to another spectacular increase in people classified as inactive, it is that is, they do not have a job or are actively looking for it Alarmingly, the number of people classified as not working due to long-term illness has increased by almost 400,000 since the end of 2019, and almost 150,000 only in the data of the last two months It’s hard to escape the conclusion that this is related to pressures on the NHS (National Health Service),” explains James Smith, an ING analyst. In fact, a record 2.46 million people between the ages of 16 and 64 have been classified as long-term ill, an increase of 350,000 since before the pandemic.
At the same time, it appears that the demand for employees is cooling off, though not necessarily very quickly. The level of job offers has fallen from its peak, but the number of dismissals is low and stable (although the level has increased slightly in these latest data). The number of job offers from June to August 2022 was 1,266,000, which represents a decrease of 34,000 compared to the previous quarter and the largest quarterly drop from June to August 2020.
Something that, according to Smith, will not calm some ‘hawks’ of the BoE concerned about the advance of wages with inflation that has reached double digits for the first time in 40 years and with nightmare forecasts ().
“The Bank of England will look at all of this through the lens of the worker shortage that has plagued the labor market for the last year or so. Although some causes of that shortage appear to be abating – for example, the immigration of workers extra-community has risen notably this year – other factors are, in any case, getting worse”, points out the economist.
“The data release provides great support for the BoE hawks. The unemployment rate is well below what is sustainable in the medium term and wage growth continues to surprise on the upside. A 50 basis point rate hike remains ours.” Base case scenario for the central bank meeting on September 22, as the government’s emergency package reduces the need for front-loading by forcing inflation down next year,” says Ana Luis Andrade of Bloomberg Economics.
The rise would leave the British reference rate at 2.25%, although a rise of 75 basis points is not ruled out. The markets continue betting on rates at 4.3% in June 2023.
“The question now is whether the pressure from energy prices will force companies to revise their plans and make more significant changes to their workforces. A more visible impact on the labor market can be expected in the coming months, but the commitment recently announced by the Government of the companies, as well as that of the households, should help to avoid a sharp increase in unemployment this winter”, Smith concludes.
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