business

Labour Market Continues To Slowly Loosen

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This morning's UK labour market report reiterated the upward trend in unemployment, with joblessness rising to 4.2%, it's highest level since last summer, however "These now-typical caveats around data quality concerns amid ongoing ONS data collection issues must continue to apply. In any case, despite the unexpectedly large rise in unemployment, the headline rate remains below the MPC's February forecast of 4.4% in the first quarter of this year, says Michael Brown Senior Research Strategist at Pepperstone.

However, of much more interest to the BoE will be the relatively sluggish pace of cooling earnings growth, with overall earnings increasing at 5.6% YoY for the second straight month, while regular pay growth remains north of 6%. This may raise further concern among some MPC members over the persistence of inflationary pressures, especially with services CPI having remained stubborn, running above 6% YoY for 18 months now, ahead of the March inflation report due tomorrow morning. While that will, naturally, be a much more significant driver of BoE policy, with the 2% target likely to be met, albeit briefly, in the spring, the continued loosening of the labour market should leave policymakers on track to deliver the first 25bp cut of the cycle at the June MPC meeting, particularly with Committee members having flagged that policy will remain restrictive, even once the normalisation process has begun.

ONS, Jane Gratton, Deputy Director Public Policy at the British Chambers of Commerce said:

“With the number of vacancies continuing to fall, and unemployment ticking up, there are further signs that the labour market is cooling.

“But we are certainly not out of the woods yet. Too many firms are still struggling to find the people and skills they need to fill job vacancies. At the same time, real wage growth continues to rise, ramping up the cost of employment. All this acts as a brake on activity, profitability and investment.

“Government and employers need to find ways to bring more people back into the workforce and to train them for our current and emerging skills needs. As well as investing more in skills, it means removing barriers to work and ensuring job seekers are well prepared to succeed in the workplace.

“Employers offering fairer and more flexible workplaces are often more successful at attracting and retaining talent in a competitive labour market.

“However, we are concerned by the growing number of people not looking for work, with a large chunk of those out of action due to long-term health issues. More must be done to help people with ill health stay in work and to help employers understand how best to support them.

“Until we get more people permanently back into the workplace then the upside risks of higher inflation and interest rates will remain.”

Matthew Percival, CBI Future of Work & Skills Director, said:

“The UK’s labour market looks increasingly two-speed. Unemployment is rising and inactivity persists. Meanwhile there remain a heightened number of jobs that employers can’t fill, causing pay to rise faster than compatible with significantly cutting interest rates. This highlights the importance of improving access to training, particularly reforming the failed apprenticeship levy.”