UK workforce dropouts reduce unemployment to lowest since 1974

UK inflation rises to highest rate in 40 years

LONDON: Britain’s unemployment rate fell to the lowest since 1974 as more people dropped out of the workforce, fanning upward pressure on wages.

The government said 3.6% of adults were out of work and looking for jobs in the three months through July, lower than the 3.8% pace in the previous months. Economists had expected no change.

The report also showed wages growing well above the pre-pandemic average and a record level of long-term sickness.

Together, the figures indicate less slack for the economy to grow without pushing prices past the Bank of England’s (BoE) 2% target. That adds to pressure on the BoE to raise interest rates and on the government to get people back into work.

“For a government that wants to cut taxes to boost growth, today’s figures spell trouble,” said Tony Wilson, director at the Institute for Employment Studies.

“If we don’t do more to help more people into work, then any tax cuts will just lead to even higher inflation and higher interest rates for longer.”

Prime Minister Liz Truss is aiming to boost the pace of growth in the UK economy to help pay for a multi-billion pound rescue package for households and businesses facing spiralling energy bills.

The figures underscore the problems employers are having to fill jobs, which is forcing them to raise pay.

“The cost-of-doing-business crisis is intensifying,” said Jane Gratton, head of policy at the British Chambers of Commerce.

“With firms doing their best to keep afloat during a period of spiralling costs, they are also facing an extremely tight labour market, which is further impacting their ability to grow.”

Officials led by governor Andrew Bailey have said they’re prepared to act “forcefully” to contain inflation, which pushed into double digits for the first time in 40 years.

Investors expect the central bank to lift the key lending rate at least half a percentage point next week from 1.75%. There’s a chance that the BoE pushes through a three-quarter point increase.

“The UK labour market data released Sept 13 provides plenty of support for the hawks at the BoE. The jobless rate is sitting well below what is sustainable in the medium term and wage growth continues to surprise to the upside.

“A 50-basis-point rate increase remains our base case for the central bank’s meeting on Sept 22, as the government’s emergency package reduces the need for front-loading by forcing a decline in inflation next year,” said Ana Luis Andrade of Bloomberg Economics.

“For businesses, low unemployment means labour shortages remain a very real concern,” said Kitty Ussher, chief economist at the Institute of Directors.

“Having said that, today’s data also suggests some firms are pausing recruitment plans in the face of a weakening economy.”

The decline in the jobless rate was driven by a sharp increase in the people classed as economically inactive, or not seeking jobs.

A total of 194,000 people left the workforce – the most since the start of the pandemic. Part of that was due to rising levels of sickness. Young people who were working also moved back into education.

Other figures published by the Office for National Statistics added to concerns about the tightness of the labour market.

This included regular weekly earnings excluding bonuses that rose 5.2% in the quarter through July, above the 5.1% pace economists had expected and the 3% average before the pandemic. — Bloomberg