London, Oct 11 (BNA): Britain’s unemployment rate fell to its lowest level since 1974 at 3.5% in the three months to August, but the decline was driven by a record jump in the number of people leaving the labor market, which increased the unemployment rate. Bank of England headache.
The Office for National Statistics said the number of people classified as inactive — neither in work nor looking for it — rose by 252,000 from the three months through May, the largest increase since records began in 1971.
The Bank of England (BoE), which is also trying to stem financial market turmoil caused by new Prime Minister Liz Truss’s unfunded tax cuts and pledges to end economic “doctrine”, is concerned that a shrinking labor market will feed inflation pressures.
“While there have been initial signs that the labor market is cooling off from the turbulent conditions seen in recent months, a labor shortage is keeping it exceptionally tight,” said Ruth Gregory, chief economist at Capital Economics.
“This will continue to put heavy pressure on the Bank of England to raise interest rates aggressively over the coming months.”
The Bank of England raised interest rates from 0.1% last December to their current level of 2.25%.
Investors are betting heavily on a full percentage point increase in its upcoming policy announcement on November 3 as it moves to offset the inflationary effects of tax cuts announced by Finance Minister Kwasi Karting last month.
The Office for National Statistics said there was a rise in employment and a decrease in inactivity in the three months to May, which may explain some of the big change in the three months to August.
The Office for National Statistics said the 0.6 percentage point increase in the inactivity rate to 21.7% in this period was the largest ever along with the increase between March and May 2020 when the coronavirus pandemic hit Europe.
Economists polled by Reuters had expected the unemployment rate to remain at 3.6 percent.
The number of employed people fell by 109,000 in the June-August period, less than the median forecast of a 155,000 decline in a Reuters poll.
Wages, excluding bonuses, rose 5.4 percent, their highest growth rate since the three months to August 2021. A Reuters poll indicated a slightly smaller increase of 5.3 percent.
Including bonuses, wages rose 6.0%, slightly stronger than the poll’s forecast of 5.9%.
But wages are rising much less than inflation, which reached nearly 10% in the latest data.
The number of job vacancies in the July-September period fell to 1.246 million, the lowest level since late 2021 but still high by historical standards, highlighting the problems facing many employers struggling to fill their empty roles.
“The labor market remains unusually tight, and for the first time ever, there are more job openings in the economy than there are people looking for work,” said Kitty Usher, chief economist at the Institute of Directors.
“Combined with such low unemployment and rising wages, we see no reason for the BoE to halt its upward run for higher interest rates when it meets in early November.”
EAE