The UK’s labor market has witnessed a contraction of 82,000 jobs in the quarter to August, marking a continuation of the declining trend observed since spring this year. This reduction follows an earlier decline of 113,000 jobs. The unemployment rate has risen slightly to 4.2% from 4%, adding over 74,000 individuals to the unemployment total of 1.4 million, a peak not seen in two years.
The Office for National Statistics (ONS) data also showed an increase of over 74,000 economically inactive individuals, bringing the total to 8.7 million. The ONS gathers these figures through online surveys and administrative tax data. These statistics, including the highest unemployment rate in two years, will guide the Bank of England’s Monetary Policy Committee’s (MPC) decisions on future interest rate changes.
Analysts anticipate that the MPC, led by Governor Andrew Bailey, will maintain interest rates at 5.25% in their forthcoming meeting due to the current state of the labor market and inflationary pressures. The Bank of England has paused its interest rate hikes designed to manage inflation that is currently three times above the 2% target.
Recent data also revealed a fall in job vacancies to below one million and a slowdown in pay growth rate—key indicators of inflationary pressure that the Bank monitors closely. Thomas Pugh from RSM UK predicts significantly slower wage growth due to the cooling labor market, while Ashley Webb from Capital Economics suggests that indicators like PAYE employment show a gradual loosening of the labor market.
Despite earnings growing slightly faster than inflation, they remain £12,000 a year lower than pre-financial crisis trends, according to ONS data. This further underlines the challenges faced by workers in today’s economic climate and adds another layer of complexity for policymakers at the Bank of England as they navigate the balance between inflationary pressures and maintaining economic stability.
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