UK unemployment falls to lowest level since 1974

Posted on October 11, 2022Comments Off on UK unemployment falls to lowest level since 1974

UK unemployment hit a fresh multi-decade low in the three months to August as long-term sickness kept more older workers out of the labour market, official data showed on Tuesday.

The Office for National Statistics said unemployment stood at 3.5 per cent — 0.3 percentage points down on the quarter and the lowest since 1974 — due to a fresh rise in economic inactivity.

UK chancellor Kwasi Kwarteng said the 50-year low in the jobless rate showed that “the fundamentals of the UK economy remain resilient” despite the challenges facing countries around the world.

But the latest drop in unemployment has an unwelcome cause: the large number of people who are counted as inactive, rather than unemployed, because they are not job-seeking or available to start work.

Analysts said the figures would bolster the case for the Bank of England to raise interest rates aggressively next month, and underlined the urgency of government action to ease labour shortages.

Monetary policymakers are concerned that wage pressures will remain strong even as the economy slows — making it harder to bring inflation down from August’s 9.9 per cent rate — because so many people have dropped out of the labour market since the start of the pandemic.

The latest figures showed no let-up in these trends. The inactivity rate was up 0.6 percentage points on the quarter at 21.7 per cent, driven by long-term sickness among older people and by students choosing not to work.

“This presents a headache to the government and Bank of England,” said Thomas Pugh, economist at the audit firm RSM, adding: “The government has no chance of meeting its 2.5 per cent growth target without getting more people back into work.”

Tony Wilson, director of the Institute for Employment Studies, noted that “virtually none of those who have left the labour market are on unemployment benefits and most aren’t even on benefit at all”, so that threats by the government to cut benefits would not boost labour supply.

Meanwhile, real-terms earnings fell at near-record rates, as rising living costs ate into household incomes, with total weekly pay 2.4 per cent lower than a year earlier after accounting for inflation.

But in nominal terms, the ONS said wage growth was the fastest on record, outside the Covid-19 period when the figures were distorted.

Growth in average weekly earnings, including bonuses, strengthened to 6 per cent while regular earnings were up 5.4 per cent, a bigger pick-up than expected.

Ruth Gregory, at the consultancy Capital Economics, said the figures would “maintain intense pressure on the Bank of England to raise rates aggressively over the coming months”.

James Smith, economist at ING, said the central bank would “ultimately view this through the lens of labour shortages, which don’t appear to be improving” — with the latest figures creating no obstacle to policymakers’ taking “forceful action” in November.

However, there were some signs in the data that the UK’s labour market is starting to cool as both employers and workers worry about the effects of inflation and rising borrowing costs.

The employment rate fell by 0.3 percentage points to 75.5 per cent in the three months to August — the first quarterly drop since Covid disruption eased — leaving it a full percentage point lower than before the pandemic.

The ONS noted that this followed a quarter in which the employment rate had been unusually high and inactivity unusually low, suggesting the underlying change in the economy might be less.

The number of vacancies also fell for a third consecutive quarter — at its sharpest rate since mid-2020 — although it remains near historic highs, with more job openings than there are unemployed jobseekers.

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Comments Off on UK unemployment falls to lowest level since 1974