Friday, June 14, 2024

UK unemployment is up, but wage rises make early interest rate cut less likely

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Private sector employers have cancelled job adverts and shed workers at a steady rate over the last year.

According to the latest labour market data covering the three months to the end of April, the number of workers in the manufacturing sector was down from the same month last year.

Likewise, retail sector employers have cut jobs, along with the hospitality sector. Perhaps surprisingly, given all the cyber-attacks on UK organisations and the demand for digital workers, the number of IT workers was lower in April than a year ago.

Without an increase in the number of people employed across the health service and in education and public administration, the unemployment rate would have jumped by even more than it did.

Across all sectors, the number of people unemployed rose by 138,000, taking the total to a little more than 1.5 million and lifting the unemployment rate to 4.4% from 4.3% in March.

The data also shows that companies are cutting back on hiring, with the number of vacancies in March to May 2024 falling by 12,000 to 904,000.

For the political parties campaigning in the general election, this data shows on the one hand that Rishi Sunak’s administration has put money into prominent areas of the public sector to increase staffing levels. There were 170,000 more health and social care workers in April than a year ago and 70,000 more people working in the education sector.

On the other hand, almost every private sector industry cut back on the size of its workforce, indicating that businesses are looking, in some cases, to survive a period of slow growth, while others reduce staff to be more productive and improve their margins.

The worst-affected private sector industry was hospitality and hotels, which the Office for National Statistics said has shed almost 80,000 workers in the last year.

It is not hard to see why hotel managers would be hoping to be more efficient with the way they employ staff. The sector was at the top of the pay table in April, adding almost 10% to staff wages since last year.

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While most of this rise can be attributed to the increase in the minimum wage, it illustrates the pressure on businesses when forecasts for the economy show growth staying below 1% this year and not much above that figure next year.

The Bank of England will be concerned that wages are still rising at an average level of about 6%. While most analysts expect that figures to slide during the rest of the year as the minimum wage rise begin to have less effect, central bank policymakers will want to delay the first interest rate cut since 2020 until they begin to see it happen.

One thing the bank cannot know is how many businesses that pay above the minimum level will need to follow suit. The supermarkets have all increased pay at rates above inflation to stop workers defecting to industries that are catching up in the salary race.

If this trend becomes widespread, if only temporary, there will be no cut in the cost of borrowing until August at the earliest, and possibly not until November.

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