Written by Marcus Brookes, chief investment officer at Quilter Investors
The UK employment rate for May to July 2022 for people aged 16 to 64 years decreased by 0.2% on the quarter to 75.4% and remains below the levels during the pandemic.
Meanwhile the unemployment rate for May to July 2022 decreased by 0.2% on the quarter to 3.6%, the lowest rate since May to July 1974. However, this is a lagging indicator of economic activity and the slow decrease in unemployment should illustrate the UK is far from an economic nirvana at present, quite the contrary, we are flirting with a recession due to the double whammy of a tight labour market caused by an unexpectedly large shrinking of the workforce post pandemic, Brexit and a cost-of-living crisis.
Businesses just last week were facing the prospect of having to shut up shop due to eye watering energy bills which would have seen lots of people become unemployed. However, the recently announced energy package should help businesses stay afloat during the winter as they would not be subject to the energy price cap.
However, the UK is not creating lots of new jobs due to a prosperous economy, and while Truss has suggested throwing lots of money at the energy crisis, a lot of damage has already been done.
The number of job vacancies in June to August 2022 was 1,266,000, a decrease of 34,000 from the previous quarter and the largest quarterly fall since June to August 2020. However, there are still a lot of workers to be found. The Bank of England may well have raised interest rates higher this week in light of the labour market remaining this tight however the MPC meeting has been delayed.
Growth in employees’ average total pay (including bonuses) was 5.5% and growth in regular pay (excluding bonuses) was 5.2% in May to July 2022, but considering inflation is in the double digits this will make workers still feel hard done by as they are experiencing a fairly sizable real terms cut of 2.6% with regular pay falling by 2.8%. People will understandably be looking to their employers for help during the cost-of-living crisis while Andrew Bailey will be hoping that businesses don’t up salaries too high too quickly and compound inflation. However, the UK must brace for discontent amongst the public sector with strikes over pay continuing as budgets are stretched.
Although yesterday’s GDP figures will have eased any immediate recession fears the Bank of England and policy makers still have a tricky challenge on their hands. Rate rises are likely inevitable to try and tame inflation but whether workers can handle this increase is yet to be seen. Truss has had a difficult and unusual start to her time as PM but with these problems looming it is unlikely to let up.