UK unemployment hits lowest level since 1974 but jobs boom fades

William Schomberg and David Milliken

LONDON (Reuters) – Britain’s jobless rate fell to its lowest level since 1974, but the drop was mainly due to a shrinking workforce and there were other signs that the country’s jobs boom is fizzling, adding to the Bank of England’s headache. of England due to inflation. .

The unemployment rate fell to 3.6% in the three months to July, the Office for National Statistics said. Economists polled by Reuters had expected it to hold at 3.8 percent.

However, the drop was not a sign of health in Britain’s recession-prone economy.

The number of workers rose by 40,000, less than a third of the increase forecast in a Reuters poll.

“We are now starting to see signs that the labor market is losing momentum,” said Jack Kennedy, UK economist at global job site Indeed.

The economic inactivity rate – measuring the share of the population neither working nor looking for work – rose 0.4 percentage points in the quarter to 21.7%, the highest since the three months to January 2017.

The ONS said the rise was due to more people being classified as long-term ill and fewer full-time students moving into employment than normal for the time of year.

At the same time, wage growth rose more than expected, reflecting a lack of job applicants, although it still lagged well behind inflation expected to reach 10.2% in the 12 months to August, when data are published on Wednesday.

The BoE is concerned that labor market tightness will add to the recent rise in price pressures.

Britain’s central bank raised interest rates by the most since 1995 last month. They are expected to rise again on September 22.

Sterling jumped against the US dollar after Tuesday’s data and investors priced in an 83% chance of a three-quarters of a percentage point hike by the BoE next week, which would be the biggest since 1989, barring an exit attempt . appreciated the pound in 1992, which was quickly reversed.

PRICE PRESSURES

There were other signs of price pressures in the labor market in the ONS data released on Tuesday.

Wages excluding bonuses rose 5.2 percent, the highest rate since the quarter to August 2021. A Reuters poll had shown a 5.0 percent increase. Including bonuses, wages rose 5.5%.

Britain’s labor market has defied expectations of a rise in unemployment during the coronavirus crisis, helped by a government job protection program worth 70 billion pounds ($82 billion).

However, there have been signs recently that the jobs boom is losing some of its momentum.

In addition to weaker-than-expected employment growth, the number of job vacancies in the June-August period fell by the most in two years, below 34,000, although it remained at a historic high of 1.266 million.

James Smith, an economist at ING, said rising energy prices could force companies to cut more staff.

“We would expect a more visible impact on the labor market in the coming months, but the government’s recently announced commitment to curbing business as well as household energy bills will help avoid a sharp rise in unemployment this winter,” Smith said.

New Prime Minister Liz Truss last week announced a cap on rising energy prices.

($1 = 0.8532 pounds)

(Reporting by William Schomberg Editing by David Milliken and Jacqueline Wong)

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