The economic lesson of the week is that headlines are often deceiving. Yesterday’s GDP update for the month of April showed a 0.3 percent contraction – but that was largely due to the rollback of state-funded programmes designed to tackle Covid-19. Now today’s employment updates show the headline employment rate up – to 75.6 per cent – and the headline unemployment rate largely unchanged for the three months leading up to April. But is the labour market as ‘tight’ as these numbers suggest?
In the short-term, Britain’s workforce seems stable. While prices spiral and growth remains largely stagnant, there are no immediate signs of rising unemployment. And the chunk of the population not working – the economically inactive – softened to 21.3pc, down 0.1 points. Still well above pandemic levels, but heading in the right direction.
It’s expected that knock-on effects of inflation will hit the labour market as some point.
However, this small dip was deceptive: largely due to a change in studying status for students. And figures from the last month we have data for, April, show hints that things could take a turn for the worse. The rise in employment over three months – up 177,000 from February to April – smashes the consensus forecast of 107,000. But in April alone the unemployment rate rose much more dramatically – from 3.5 per cent to 4.2 per cent – as over 250,000 fell out of employment.
There’s a reason the headline numbers are calculated using data from multiple months: what happened in April alone is less informative than the trend building up for some time. But with inflation at 9 per cent on the year in April, and expected to rise further, it’s expected that knock-on effects will hit the labour market as some point. It’s already having an effect on pay, as today’s figures show: while growth in regular pay was up 4.2 per cent in February to April, regular pay in real terms fell on the year by 2.2 per cent, meaning despite pay hikes, declined purchasing power has workers feeling worse off.
And while growth in job vacancies has ground almost to a halt, rising only slightly from 1.296 million in the three months to April to 1.3 million in the three months to May, the UK is still experiencing record-high vacancies, leading the British Retail Consortium this morning to brand it ‘the tightest labour market in decades.’
All this is compounded by one of the biggest unspoken facts of UK politics right now: there are more than five million people missing from the workforce: on out-of-work benefits and most of them not included in unemployment figures because they are not seeking work.
Today’s data drop suggests things remain stable for now. But there are small hints, too, that it may not stay this way for much longer.
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