Paul Craig, portfolio manager at Quilter Investors, looks at the potential impact of Omicron on the UK jobs market and what this may mean for the economy and the B0E interest rate.
It’s been a case of so far, so good for the UK labour market since the end of the furlough scheme. The jobs market has been building strength, with unemployment falling to 4.2% in December from peak-pandemic highs and a new record 1.22 million vacancies posted. The positive recovery was continued in November, with 257,000 more employees on the payroll than the previous month, and 424,000 more than before the pandemic.
However, the emergence of the Omicron variant, which looks set to become the dominant strain in the UK very soon, could well derail the progress of the jobs market recovery and put a spanner in the works of continued economic growth, especially within the hospitality sector. We are now in the situation where employees are being told to work from home where possible and people may well be too scared in the run up to Christmas to socialise to the extent they may want.
Both of these factors will inevitably disrupt demand, particularly in city areas, but with limited government support schemes in place, there will be no cushion for businesses in the festive season. There was a 20% drop in footfall at railway stations managed by Network Rail on Monday compared with a week ago. Meanwhile passenger numbers on London underground fell by 18% compared with last week.
This may well reduce the number of vacancies in the labour market, or at least slow the rate of vacancy growth further, and could contribute to a slight uptick in unemployment over the winter months. It may even dissuade people looking for employment in the short-term for certain industries.
Of course, all roads lead to the Bank of England’s interest rate decision on Thursday. The uncertainty around the direction of the labour market was one of the key reasons for the Bank’s surprise hesitancy in hiking rates. We are still far away from clarity on the matter, so don’t hold your breath for a rate hike this time around. As always, investors should prepare for the worst, and hope for the best.
