UK labor market data indicate inflation speeding still
ALBAWABA – Unemployment in the United Kingdom (UK) dropped in April, as signs indicate the UK labor market has tightened unexpectedly in the three months through April, according to a statement by the Office for National Statistics Tuesday.
Wages also shot up in April, indicating that inflation is still speeding up in the UK.
The Unemployment rate dropped to 3.8 percent in three months, contrary to expectations that it would rise in the observation period, February through April.
According to Bloomberg, the Bank of England is expected to raise interest rates by at least 120 basis points, taking the key rate to above 5.7 percent by February 2024.
That would be the highest rate since October 2022.
Britain’s Pound Sterling jumped 0.5 percent, to $1.2566, Bloomberg reported, following 12 consecutive interest rate hikes.
Employment rose to a record of 33 million, surpassing pre-pandemic levels for the first time, as British companies are scrambling to recruit competencies, bidding up pay in the process.
“Fierce competition for skills, wage demands and candidates’ expectations leave many businesses with job vacancies they can’t fill,” Jane Gratton, at the British Chambers of Commerce, told Bloomberg.
“Together with broader inflationary pressures, it’s a perilous environment for business,” she said.
Official figures show that the number of people classified as inactive – either out of work or not looking for work – declined by 13,000. Whereas the total number of jobless people dropped by 25,000, the news agency confirmed.
Meanwhile, the total number of employed people in the UK labor market jumped 94,000.
These UK labor market figures came as a major surprise for economists as well as the Bank of England, as expectations were that the market would loosen, under the pressure of high-interest rates.
A shortage of workers, as reported by Bloomberg, is now fanning a wage-price spiral. Especially considering that a significant part of the workforce dropped out in the pandemic.
“The UK labor market remains very tight and continues to confound expectations,” Hussain Mehdi, Macro & Investment Strategist at HSBC Asset Management, told Bloomberg.
“For the Bank of England, wage growth is a big problem – it is simply at too high a level to allow inflation to hit the 2 percent target,” he said.
Wage growth in April was boosted by a 9.7 percent increase in the national minimum wage, which was aimed at cushioning the lowest-paid workers from a surge in food and energy prices.
Overall, pay growth excluding bonuses accelerated to 7.2 percent, the highest rate ever recorded outside of the pandemic. In the private sector, pay is growing by 7.6 percent, also a record aside from the period distorted by Covid lockdowns, as reported by Bloomberg.
In the meantime, pay is still rising more slowly than inflation is speeding up, eating into the spending power of consumers and delivering the tightest cost-of-living squeeze in generations.
Chancellor of the Exchequer Jeremy Hunt has vowed to halve inflation in 2023.
“Rising prices are continuing to eat into people’s pay checks – so we must stick to our plan to halve inflation this year to boost living standards,” Hunt said in a statement.
Real wages adjusting for inflation are still 1.3 percent lower than a year earlier, Bloomberg reported. That has led to the worst period of industrial strife since the late 1980s.
