With the Chancellor set to outline a ‘back to work’ Budget, what do the latest UK labour market statistics portend for the UK economy? Richard Carter, head of fixed interest research at Quilter Cheviot, takes a view.
The latest ONS jobs data show the UK labour market continues to be tight with pay pressures remaining high. This points to a 4% peak in UK interest rates looking optimistic, with a 25bps hike perhaps more plausible next week, but only if worries about the US financial system subside. The Bank faces something of a conundrum about whether to hold rates and inject some stability or to continue to fight inflationary fires.
Wages are key and the ONS reported wage growth up 6.5% in November to January 2022, dipping slightly from 6.7% in October to December, although it is worth noting that this is a lagging indicator.
This jobs data comes on the eve of a ‘back to work’ budget set to be focused on measures to crack UK’s low productivity puzzle, including to tempt older workers back into employment.
The Chancellor will be pleased that some of the numbers are slowly tilting in his favour as today’s data sees the rate of economic inactivity decrease by 0.2 percentage points on the quarter to 21.3% in October to December 2022. This was driven by people aged 16 to 24 years, rather than by 50-to 64-year-olds moving back into the workforce as targeted by the Chancellor.
However, overall this is small progress for a government seeking to stave off recessionary threats and bring down inflation, and a Tory party that likes to speak about the significance of hard work.
The number of job vacancies is falling but remains historically high at 1,124,000. Only time will tell if the Chancellor’s plans, which are rumoured to offer additional support for childcare, scrap the Work Capability Assessment and increase pension allowances to target the over 50s, will provide the necessary antidote to the UK’s toxic productivity.
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