UK job market weakens as economy set to worsen
The jobs market failed to provide more positive signs for the UK economy as official data suggested that fewer postings were available for job seekers.
An estimate published on Thursday showed that the number of payrolled employees dropped by 49,000 in February while data showed a small rise in January.
The Office for National Statistics (ONS) revealed that the number of job vacancies had fallen slightly to 721,000.
“The number of workers on payroll rose slightly in the latest month but, overall, the recent picture has been broadly flat”, said Liz McKeown, economics statistics director at the ONS.
The unemployment rate stayed at 5.2 per cent.
Several employers and business groups have blamed the higher tax burden and extra workers’ rights regulation for the weakening of the jobs market.
At its last meeting in February, the Bank of England predicted that unemployment would peak at 5.3 per cent this year, higher than economists had previously forecast.
Despite worries around the Uk jobs market, the Bank’s Monetary Policy Committee is expected to hold interest rates later on Thursday amid fears that the Iran war could send prices spiralling over the coming months.
A hold in borrowing costs is set to dampen hopes of a recovery in the UK jobs market, with economists saying that higher interest rates are set to keep hiring trends cool. Capital Economics’ Ashley Webb said that higher cost pressures from the war “could mean that firms cut headcounts further in the coming months.”
Jobs market worries linger
Thomas Pugh, chief economist at the consultancy RSM, said: “The unemployment rate holding at 5.2 per cent in January highlights just how weak the labour market was coming into the Iran crisis, and higher energy prices will only worsen that picture.
“Even though the war in Iran has made today’s data essentially redundant for this afternoon’s MPC meeting, which is all but guaranteed to keep interest rates on hold, the labour market will still be a key focus for the MPC.”
“That weakness will temper the likely hawkish shift from the MPC this afternoon and is the key reason why we expect a prolonged hold if energy prices stay high, rather than rate rises.”
RBC BlueBay analysts said the jobs market was in a “precarious situation”, with the unemployment rate at risk of rising as high as 5.5 per cent by the summer.
Work and pensions secretary Pat McFadden said the rise in the activity rate compared to last year was “encouraging”.
“We know there is more to do to get people, particularly young people, into work,” he said.
Wage growth eases
Wage growth excluding bonuses unexpectedly dropped to 3.8 per cent in the three months to January, it was also revealed.
A Bloomberg poll of economists expected wage growth to soften to four per cent.
Public sector pay has also continued to far outstrip private sector growth, with wage increases across the public sector being nearly being nearly double that seen among firms.
Pay growth is a key piece of economic data for Bank officials given its bearing on “second-round effects”, which is when elevated wage rises keep inflation higher.
Chancellor Rachel Reeves has staked her economic plans on the Bank’s interest rate-cutting path, with the government intervening to strip energy subsidy costs from household bills from April.
The government had hoped that interest rate cuts would allow the government to pay less in debt interest to its lenders and ease pressure on public finances.
Officials have also talked up lower mortgages for home owners as being key to Labour’s cost of living message.
The combination of higher unemployment and a pause in interest rate cuts due to the war in Iran could thwart the Chancellor’s ambition to help support Britons with the cost of living.