UK Unemployment Falls to 4.5% But Labour Force is Shrinking
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The Office for National Statistics (ONS) reports today that the number of job vacancies in the UK economy has reached a record high of 1.1 million in the three months to August.
Unemployment has fallen to 4.5% from 4.9% in the previous quarter as the labour market continues to tighten.
There is now a ratio of 1.45 jobless people per vacancy, down from the peak of 4.1 at the height of the pandemic – the ratio is now at its lowest in 40 years.
The ONS labour market numbers also recorded a rise in employment to 75.3% (1.3% lower than February 2020) and a fall in economic inactivity to 21.1% (0.9% higher than pre-pandemic).
ING analyst: November interest rate rise unlikely
ING analyst James Smith commenting on the prospects for an early interest rates rise by the Bank of England, said:
“We suspect caution will prevail at November’s Bank of England meeting. True, there hasn’t been much push back from MPC members in light of recent market pricing. But before hiking the Bank will want to be sure that a) wage growth is going to be sustained and more importantly, widespread, and b) that the furlough scheme hasn’t resulted in a material increase in jobs market slack.”
He added: “The reality is that policymakers are unlikely to have the answer to either question before the next meeting.”
The incredibly shrinking UK labour force
In comments to the Financial Times Tony Wilson, director of the Institute for Employment Studies, reckons that the workforce has actually shrunk by around two million as older workers take retirement earlier than previously anticipated and younger people opt to stay in full-time education.
“Today’s figures show that labour shortages are now affecting the whole economy. These shortages are holding back our economic recovery and won’t fix themselves by just exhorting firms to pay more,” he said.
Wages data has been distorted by the pandemic, but even after taking that into account the ONS estimates the annual growth in nominal wages is between 4.1% and 5.6% in the quarter to August.
End of furlough could still increase unemployment
Smith thinks the Bank of England is probably being too optimistic in its assumption that the end of the furlough scheme won’t increase unemployment.
“Around 2% of employees were likely still furloughed for all of their usual hours when the scheme recently ended, and three-fifths of staff on the scheme were in small businesses. We suspect this partially reflects a lack of confidence among smaller firms to return to their pre-Covid workforce size.”
Others, such as Enterprise Investment Scheme (EIS) provider Deepbridge Capital, are interpreting the data as a vote of confidence in the strength of the UK recovery.
Commenting on UK unemployment falling to 4.5%, Ian Warwick, Managing Partner at Deepbridge Capital, said: “Today’s unemployment data shows the resilience of the UK economy as economic stimulus measures taper off.”
Admittedly in part talking up his company’s book, Warwick continued: “With economic stability and growth still at the forefront of the agenda it is therefore more important than ever that scale-up businesses, particularly in high-growth sectors such as digital technologies and life sciences are supported.”
In this morning’s session the FTSE 100 is down 0.51% at 7109 and the pound is up 11 pips against the US dollar at 1.3604.
