UK Unemployment Drops, while Pay Increase slows

There was reassuring news for the Bank of England (BOE) today, as reports showed UK unemployment unexpectedly dropped from 4.4% to 4.2%, the lowest since February. Combined with a slowdown in the rate of wage rise to 5.4% annually (the lowest for 2 years) from 5.8%, this is a healthy sign that pressure due to inflation is easing. The data also resulted in the Sterling strengthening against the dollar.

However, the Office for National Statistics (ONS) also warned not to put too much weight on the data. The ONS pointed out that the Labour Force Survey has had a smaller uptake than normal in the past year, while director Liz McKeown indicated that the job market may be ‘cooling’ due to high numbers of redundancies, vacancies, and people not actively seeking work. Chancellor Rachel Reeves said the figures showed ‘there was more to do in supporting people into employment’ and promised this would be a focus of her forthcoming budget.

Although the rate of rage is still high (nearly double what the BOE believes would keep inflation in check), the figures could encourage the BOE to cut interest rates again. Investors are predicting a 1 in 3 chance of a further cut in September. In July the bank cut the rate from 5.25% to 5%, the first drop in 5 years as the bank has been battling price rises that have driven the cost of living crisis. The knock-on effect of the high rates has been higher costs for borrowing, leading to the need for high wages and therefore dissuading businesses from higher.

The figures show that the number of vacancies fell by 26,000 between April and July, 97,000 more people in jobs over the year, eclipsing the 3,000 target that many economists were predicting.

But while some are reassured that the battle against inflation may be coming to a close, others are concerned about the reduction in people trying to find work. The Resolution Foundation’s Hannah Slaughter said that the government needed to focus on improving healthcare, particularly mental health, as this was driving large numbers of young people out of the job market.

‘People in their early 20s are now more likely to be out of work due to sickness, than people in their early 40s.’

(Sources: reuters.com, bbc.co.uk)