Stalling economic growth has not yet taken the heat out of the UK labour market, according to official data on Tuesday that showed the number of full-time employees at a record high, redundancies at record lows and the number of unfilled jobs at a new record of 1.3mn.
The figures, released by the Office for National Statistics, also showed that pay fell sharply in real terms in April, the month when regulated energy prices jumped, although big bonus payments helped average UK earnings keep pace with inflation over the three month period.
The employment rate rose to 75.6 per cent in the three months to April, up 0.2 percentage points on the quarter, although 0.9 percentage points below pre-pandemic level, because the number of part-time employees and self-employed workers has not recovered.
The data showed that at least some people who have left the workforce since the start of the pandemic are beginning to return, with young people who had stayed in full-time education when job openings dried up now entering employment, driving a small drop in the economic inactivity rate.
Kitty Ussher, chief economist at the Institute of Directors, said this was “encouraging for businesses that were struggling to fill vacancies”, as it should make future job openings easier to fill and reduce inflationary pressure. She added that there were also “early signs that the labour market is beginning to settle”, with the rate of hiring slowing and a small rise in short-term unemployment.
The overall unemployment rate stood at 3.8 per cent, slightly above the 50-year low reached the previous month, but still lower than when the pandemic struck.
UK chancellor Rishi Sunak said the figures showed the jobs market remained robust, adding that helping people into better jobs was the best way to support them in the long term, although the government was also providing “immediate help with rising prices”.
The ONS data showed average regular earnings fell by 2.2 per cent in real terms in the three months to April, as inflation eroded the value of pay settlements. However, strong bonus payments — concentrated in the financial sector — kept total pay growth slightly ahead of inflation.
The data will reinforce the case for the Monetary Policy Committee to raise interest rates again when it meets this week. The Bank of England made it clear in its May forecasts it believed unemployment would need to rise and household income would need to fall in real terms if inflation was to return to its 2 per cent target in the medium term.
However, Samuel Tombs, at the consultancy Pantheon Macroeconomics, said it was encouraging that wage growth had steadied and workforce numbers had begun to recover. “The labour market remains very tight, but it is not supporting domestically-generated inflation enough to provoke the MPC into a series of rapid rate hikes that would push the economy into a recession,” he said.
Hugh Gimber, strategist at JPMorgan Asset Management, said the data showed the “conundrum” facing the Bank of England this week. “Central banks are being forced to tighten at a time when there are already clear signs that growth is slowing. Today’s uptick in the unemployment rate may offer a little comfort that the labour market isn’t overheating, but robust levels of wage growth will definitely have been noted,” he said.