Unemployment plummeted to pre-epidemic levels earlier in the year, leading to record job vacancies leading to potential worker shortages.
According to the Office for National Statistics, the unemployment rate for the three months to January fell from 4.1 percent to 3.9 percent, surpassing the 4 percent estimate.
Grant Fitzgerald, chief economist at the Office for Statistics, said labor demand remained “strong”, with vacancies reaching a record 1.31 million last month. Total employment based on salary numbers rose 275,000 to a record 29.7 million in February.
The tightening labor market has led to the expectation that workers will demand wage increases if companies fight to hire and retain workers. According to Deutsche Bank, the rate of layoffs is at an all-time high.
However, pay packets are still not consistent with consumer inflation, which reached a 30-year high of 5.5 percent in January. The Office of Statistics said that, in line with inflation, revenue rose only 0.1 percent at the start of the year. The National Institute for Economic Research Think Tank estimates that after inflation, people’s wages are 1 percent lower than in the same period last year.
Kemar White, a senior economist at the institute, said: “Ukraine’s developments are expected to increase household energy bills further and workers should expect tougher pressure on their real income.”
The unemployment rate reached its lowest level of 3.8 percent before the epidemic in late 2019, the best unemployment figure since 1974, when the economy was last hit by an oil spill and an inflationary spiral.
The “stagflation” of the 1970s led to rising wages as unionized workers demanded higher wages to keep pace with double-digit inflation.
Official figures show that average earnings, including bonuses, increased by 4.8 percent – better than expected – and many people received one-time bonus payments at the beginning of the year, compared to the estimate of 4.6 percent in the three months to January. Revenue rose 3.8 percent, including bonus snatching.
“Because bonuses continue to be high for some workers, total income growth has been kept ahead of rising prices over the past year, although regular salaries have fallen again in the real sense,” Fitzner said.
The overall employment rate remained below its pre-epidemic level, rising slightly from 0.1 percent in the three months to January to 75.6 percent. ONS says the number of people actively seeking work or dropping out of the job market has also increased.
“Lack of staff can be a sign of a long-term problem,” said Yale Selfin, chief economist at KPMG, a professional services group. “We are beginning to see the limits of the number of vacancies that re-entrants can fill in the labor market.”
The Bank of England is expected to respond to rising inflation by raising interest rates for the third time in four months tomorrow, pushing the bank’s pre-epidemic rate to 0.75 per cent. Strict monetary policy has been formulated to curb further inflation by increasing borrowing costs and reducing demand.
Deutsche Bank economists expect the central bank to continue raising rates in May, June and August, raising bank rates to 1.5 per cent in the face of prolonged inflation due to the war in Ukraine.