UK unemployment hits 48-year low, pushing up pay

LONDON: According to data released by the Bank of England, Britain’s unemployment rate fell to a 48-year low in the first three months of 2022, and firms paid more bonuses to keep or attract workers.

When accounting for rising inflation, most workers’ core wages declined by the most since 2013, according to the Office for National Statistics.

However, overall pay, including bonuses, increased by 7.0 percent over the previous year, well exceeding experts’ average projection of 5.4 percent.

Sterling increased by 1.1 percent against the dollar and 0.6 percent against the euro. Investors are pricing in a 30% likelihood that the Bank of England’s Monetary Policy Committee would raise interest rates by half a percentage point this year.

The unemployment rate fell to 3.7 percent from 3.8 percent, beating expectations in a Reuters poll that it would remain stable, while the number of unemployed individuals fell below the number of job openings for the first time in history.

“We were taken aback by the strength of today’s labour market announcement, especially given the fears of an economic slump,” Investec analyst Philip Shaw said. “In fact, it will do nothing to allay the MPC’s fears about inflationary pressures.”

The Bank of England is concerned that higher-than-normal pay growth could be a critical pathway for the present energy-driven spike in inflation to stay entrenched.

Consumer price inflation was 7.0 percent in March, and official numbers due on Wednesday are expected to reveal that it rose to 9.1 percent in April, when energy bills increased by 54 percent.

Further price increases, according to the Bank of England, will bring the economy near to recession by the end of 2022, raising unemployment.

However, some economists believe the central bank misjudged the labour market heat, at least for the time being, based on Tuesday’s figures.

“While the BoE’s messaging was dovish at its most recent meeting, the data continue to speak louder than MPC rhetoric, and we remain convinced that rates will rise by 25 basis points in June,” said J P Morgan economist Allan Monks.

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Strong salary increases, but only for a select few
While certain industries’ compensation increased by a record 9.9% in March alone, the benefits of a tight labour market are not uniformly dispersed, according to Tuesday’s report.

Bankers and builders are doing particularly well, while public-sector employees are suffering the most.

Regular compensation increased by 4.2 percent, somewhat more than predicted.

Basic salary was 2.0 percent lower than a year ago when adjusted for inflation, the greatest drop since the three months to September 2013.

Governor Andrew Bailey has stated that a drop in living standards is unavoidable as a result of the energy price shock, and that a mass push for better pay will disproportionately favour those who already have a strong job market position.

According to Pantheon Macroeconomics’ Samuel Tombs, the uneven nature of wage rises should give the Bank of England pause before raising interest rates, which financial markets forecast to reach 2.0-2.25 percent by the end of the year.

“These figures should not cause the MPC to become concerned about wage growth,” he said.

Despite the economy’s stagnation in February and March, the labour market is strong.

The number of persons working climbed by 83,000 in the first quarter of this year, but it is still 444,000 lower than it was before the COVID-19 epidemic, owing to increasing long-term sickness and early retirement.

However, Tuesday’s data showed preliminary hints that this trend is beginning to reverse, with the most persons transferring from ‘inactivity’ to work since records began in 2001.