U.K. Labor Market Strengthens With Record Jump in Employment

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U.K. companies added to payrolls in November at a record pace and unemployment fell, figures that are almost certain to fuel concerns at the Bank of England that unsustainable inflation pressures are building in the labor market. 

The Office for National Statistics data Tuesday suggest the end of the government’s job-supporting furlough program on Sept. 30 has done nothing to ease a chronic shortage of workers, which is forcing firms to raise wages and prices.

The BOE fears that a jump in inflation that it once regarded as “transitory” could prove more enduring if left unchecked. Most investors bet that policy makers are unlikely to hike interest rates this week due to the threat posed by the omicron variant of Covid-19, which has produced some pressure on government to bring back furlough benefits for those who are out of a job. That may hold back the BOE from increasing interest rates until next year. 

“The combination of a tight labor market and low unemployment evident in today’s data could on their own be sufficient to merit a rate rise under the Bank of England’s November guidance,” said Yael Selfin, chief economist at KPMG UK. “With the emergence of the omicron variant, we expect the MPC to unanimously hold off raising rates until next year.”

• The number of employees on payroll rose 257,278 in November, the most on record
• The unemployment rate fell to 4.2% in the three months through October from 4.3% in the period through September. The rate in October alone rose to 4.2% from 3.9% the month before, experimental figures show
• Overall pay growth slowed in the three months through October to 4.9% from 5.9% in the quarter through September. That’s above the 3% prevailing before the pandemic.
• The ONS didn’t produce an underlying earnings figure, saying distortions caused by the pandemic have now worked their way through
• Claims for benefits among the unemployed and those on very low pay fell by 49,800 in November
• Vacancies rose to a record 1.22 million between September and November

Today’s report has been keenly awaited by policy makers, who have voiced alarm in recent speeches about the tightness of the labor market. However, caution about the impact of new restrictions to curb the spread of omicron is expected to prove the dominant factor this month. Economists anticipate the Monetary Policy Committee will leave the benchmark rate at 0.1%. The decision is due at noon London time on Thursday.

“With the number of people on payrolls now above pre-pandemic levels across every region and age group, including the biggest monthly increase on record in November, it’s clear our Plan for Jobs is working,” Employment Minister Mims Davies said in a statement. 

What Our Economists Say ...

“Were it not for the emergence of the omicron variant in the U.K., today’s labor market release would have led to a rate hike this month because the data showed the end of the furlough scheme had little impact. While an increase in rates can’t be completely ruled out, we expect omicron and the introduction of tighter restrictions to mean the central bank holds off until the new year.”

--Dan Hanson, Bloomberg Economics. Click for the full REACT. 

The latest figures suggest the vast majority of the over 1 million workers who were still receiving furlough payments when the the program ended found work.

The redundancy rate through October remained below pre-pandemic levels. Just under 100,000 were made redundant, a quarter of the levels at the height of the pandemic. 

One reason why firms are finding it so hard to hire staff is that hundreds of thousands of people left the workforce during the pandemic. About 200,000 European Union nationals are estimated to have departed the U.K., while others have become “inactive,” declaring themselves retired, sick or in full-time education. 

Read more:

The Bank of England Needs 1 Million Missing Workers to Return

Omicron Seen Trumping Inflation for Bank of England This Week

Time to Ask for U.K. Pay Rise? These Workers Stand to Gain

Bank of England Recent Policy Comments and Decisions

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