By historical standards Britain’s current recession is a mild one, but even so weak activity is starting to take its toll on the labour market.
Nothing dramatic is happening. Unemployment is up a bit but the jobless rate remains below 4%. The number of people employed fell slightly and job vacancies continued to decrease, although the total of 908,000 remains above pre-pandemic levels.
Meanwhile, as the annual inflation rate has fallen so pay growth has moderated too. For the time being at least workers’ living standards are rising because wages are rising more rapidly than prices.
The big picture is that the labour market is still relatively tight given the fact that the economy has been moving sideways for the best part of two years. There has been no large-scale job shedding and there are still shortages of workers in many sectors.
In anticipation of the recession being short-lived, employers are hanging on to their existing staff because they are worried they will have problems recruiting when the economy does start to pick up. So while pay levels are coming down, they are probably not coming down quickly enough to prompt the Bank of England into an immediate cut in interest rates.
Private sector regular pay – an indicator closely watched by Threadneedle Street’s monetary policy committee – was 6.1% higher in the three months ending January 2024 than in the same quarter a year earlier. That is well down on last summer’s peak of 8.2% but slightly higher than the Bank has been forecasting.
With inflation poised to fall from 4% to about 2% within the next few months, further moderation in earnings growth is likely. Even so, the latest data from the Office for National Statistics suggests the structural labour market problems remain unresolved.
As Tony Wilson, the director of the Institute for Employment Studies thinktank points out, at 75% the UK’s employment rate for those aged 16 to 64 is a percentage point lower than it was before the arrival of the pandemic four years ago even though unemployment has fallen back to where it was pre-Covid.
“So as has been the story in previous months, there are fewer people in work because there are more people outside the labour force altogether – not looking or not available for work. In all, there are well over half a million more people out of work than before the pandemic began,” Wilson said.
“This is being driven by more young people and older people outside the labour force, and in particular because of more people reporting long-term health conditions that stop them from working.”
That is not good for those who are not well enough to work. It is not good for the economy either.
