U.K. unemployment dropped below its pre-pandemic level for the first time as companies generated more jobs and granted higher wages than expected.
The jobless rate fell to 3.9% in the three months through January, the lowest since the start of 2020, the Office for National Statistics said Tuesday. Employers added 275,000 jobs in February, more than double the number predicted by economists.
The figures also showed the redundancy rate fell to a record low and job vacancies reached a new high, adding to evidence of a strong recovery from Covid-19 in the weeks before the war in Ukraine. That’s feeding inflation and leading investors to expect the Bank of England to raise interest rates again this week.
“Staff shortages could be a sign of a lasting problem,” says Yael Selfin, chief economist at KPMG UK. “The U.K. labour market continued to tighten at the start of 2022.”
What Bloomberg Economics Says
“The U.K. jobs market entered 2022 carrying significant momentum that will likely be enough to deliver a unanimous vote for a Bank of England rate hike at this week’s meeting. Looking ahead, the labour market is set to have its resilience tested as the economy flirts with the recession over the remainder of the year. A further hike is likely in May, but we then expect a pause as the central bank balances growth risks against the threat posed to inflation expectations.”
--Dan Hanson, Bloomberg Economics.
The jobs data also showed average wages excluding bonuses rose 3.8% from a year earlier in the three months through January, slightly higher than economists expected. Still, when adjusted for inflation, wages fell 1%, the biggest decline since 2014.
The drop in real incomes is just the start of the harshest squeeze on consumer finances in at least three decades. A surge in taxes and energy bills are colliding with a more generalized increase in prices, part triggered by the invasion of Ukraine, which may push inflation past 10% later this year.
“The deteriorating economic outlook and the historic surge in business costs are likely to keep a lid on pay growth,” said Suren Thiru, head of economics for the British Chambers of Commerce.
Chancellor of the Exchequer Rishi Sunak said the figures put the economy on a sound footing to withstand turmoil caused by the war.
“We’ve now seen a year of falling unemployment and a stronger jobs market bounce back than so many predicted,” Sunak said in a statement. “We know people are concerned about the rising cost of living.”
The latest snapshot of the labour market from the ONS also showed:
- Vacancies rose to a record 1.32 million
- Employment increased 0.1 of a point to 75.6%
- Inactivity rose slightly to 21.3%
- The redundancy rate fell to a record low of 2.4 per thousand employees
SOURCE: Bloomberg
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