UK unemployment hits lowest rate since 1974 at 3.6%

Britain's unemployment fell to its lowest level since 1974 at 3.6 per cent in the three months to July, but wages fell further behind spiralling inflation , official figures showed on Tuesday. The number of people on payrolls for August increased by 71,000 on July figures to a record 29.7 million, the Office for National Statistics said. The economic inactivity rate — measuring the share of the population who are not in work and not looking for work — increased by 0.4 percentage points on the quarter to 21.7 per cent. This was led by those classified as long-term sick and students and could add to the inflation headache for the Bank of England. The BoE is worried about increasing inactivity in the labour market as it could help to fuel inflation pressures due to a lack of candidates to fill jobs. The rate currently stands at a 40-year high of 10.1 per cent, after energy and food bills pushed up living costs, and has been forecast to reach as much as 13 per cent. However, new Prime Minister Liz Truss last week pledged to introduce measures to halve the rate . The government’s move to freeze energy bills at £2,500 ($2,931) is set to rein in the peak in inflation, but wages are still unlikely to keep pace with rising costs. The BoE raised borrowing costs by the most since 1995 last month. It said it remained ready to act forcefully if that pressure became more persistent. It is expected to raise interest rates again on September 22. The number of job vacancies in June to August was 1,266,000, a decrease of 34,000 from the previous quarter and the largest quarterly fall since June to August 2020. "It's not often that you see the unemployment rate fall to the lowest in almost 50 years and aren't overjoyed, but that will certainly be the feeling at the Bank of England right now," said Craig Erlam, a senior market analyst at Oanda. "The decline in the rate was driven by a decline in the labour force, while employment rose by only 40,000; far less than expected. What's more, wage growth accelerated faster than expected, hitting 5.5 per cent including bonuses in the three months to July compared with the same period last year." Labour market dynamics and faster wage growth increase the odds of a 75 basis point hike given high inflation rate over the medium term as a result of the new cap on energy bills, Mr Erlam added. Konstantinos Venetis, senior economist at TS Lombard, said: “Labour participation remains well below pre-pandemic rates. Coupled with Brexit restrictions on foreign workers, this translates to constrained labour supply that is pushing the unemployment rate down. The UK job market remains too hot for the BoE as core CPI remains under upward pressure.” The ONS said regular pay, excluding bonuses, grew by 5.2 per cent over the three months to July. But, with Consumer Prices Index inflation taken into account, real pay tumbled by 3.9 per cent year-on-year, the ONS said. The ONS added that total pay, including bonuses, rose by 5.5 per cent for the three-month period, falling by 3.6 per cent with inflation taken into account. The jobs data was largely in line with analyst estimates and continued to confirm that the UK jobs market remains tight, said Lukman Otunuga, a senior research analyst at FXTM. "Importantly, wage growth was buoyant pointing to more aggressive tightening by the Bank of England. Money markets are currently predicting a 73 per cent probability of a 75-basis point rate hike by the bank at next week’s rearranged meeting," he said. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the jobs figures were “grim”, showing “the recovery in employment has petered out”. James Smith, at ING, added: “The number of workers classified as long-term sick has jumped dramatically in the past couple of months, and that’s one reason why firms are still struggling to source the staff they need. “While worker demand has cooled, Bank of England hawks will be worried that these shortages will continue to push up wage growth.” He added this would reinforce the case for more hefty interest rate rises. “Persistent worker supply constraints, coupled with so far only modest signs of reduced hiring demand, will provide further ammunition for Bank of England hawks to push ahead with further tightening,” he said. James Reed, chairman of recruitment company Reed, told the BBC: “The jobs boom that began six months after the pandemic is coming to an end, but there are still large numbers of vacancies and people advertising a large number of jobs.” He said his company’s data did not suggest an imminent jobs slump. “Employers are still struggling to recruit,” he added. He said the wage disparity between private and public sector roles would make it harder to recruit. “We’re hearing a lot of people are looking to change jobs because they’re not being properly paid. It could lead to an exodus. Wages are struggling to keep up with inflation.” Alice Haine, personal finance analyst at online investment platform Bestinvest, said: “Employee spending power is now severely compromised and with inflation expected to edge higher on Wednesday, when the ONS releases the latest reading, how far wages can go in the daily lives of workers will be tested once again. “While the labour market appears robust overall, the cost of living remains a priority for many jobseekers as they hunt for better paid roles to offset the rises in food and energy prices. “However, fears of a wage-price spiral might ease off if the chatter around an impending recession at the end of the year rings true. GDP might have risen slightly in July, but that did little to offset the flattening economic growth in the three months to July as the fallout from the war in Ukraine and rising borrowing costs took its toll on the economy.”

UK unemployment hits lowest rate since 1974 at 3.6%

ONS figures show worker pay lags behind soaring inflation - despite wage increases