Outlook for U.K. Jobs Darkens as Companies Signal Retrenchment
U.K. wages are growing at their fastest pace for a decade as companies struggle to fill vacancies.
(Bloomberg) -- Clouds are gathering over the booming U.K. labor market.
Britons are enjoying record employment but the list of companies saying they’re shutting down production in the U.K. or warning about profits is getting longer. Japanese carmaker Honda Motor Co. said Tuesday it will close its plant in Swindon with the loss of thousands of jobs.
With Britain’s departure from the European Union imminent and global trade tensions brewing, companies are slashing investment and economic growth is cooling. Honda’s plans are the latest symbol of the decline of British manufacturing, and it follows warnings of production cuts from Nissan Motor Co. and Ford Motor Co. this month.
For now, wages for U.K. workers are growing at the fastest in a decade as firms struggle to fill vacancies. Average earnings grew an annual 3.4 percent in the final three months of 2018, the Office for National Statistics said Tuesday. The number of people in work surged again, leaving unemployment at a rate last lower in the 1970s.
But with the threat of a chaotic Brexit hanging over the outlook, the question is how long the boom can last. The economy shrank in December and bad news is piling up, from the collapse of regional airline Flybmi to vacuum-maker Dyson Ltd.’s decision to move its headquarters to Singapore.
Firms say they’re braced for a slowdown, and the number of people placed in permanent jobs fell last month for the first time since the 2016 Brexit referendum. While weak productivity is inflaming cost pressures in the labor market, the Bank of England signaled this month it is in no hurry to raise interest rates.
What Our Economists Say...“If there’s a Brexit deal, we think the economy will run at full employment for the rest of this year. That would challenge the Bank of England’s recent dovish take on the economic outlook -- currently expecting spare capacity to re-emerge later in 2019. If we’re right, the central bank is likely to lift rates in August.”--Dan Hanson, Bloomberg Economics. Read the INSTANT REACT |
Workers from the rest of EU, particularly from eastern countries such as Poland that joined the bloc in 2004, are now leaving in droves. There were 61,000 fewer EU nationals working in the U.K. in the fourth quarter than a year earlier, with the number of so-called EU8 citizens falling by 89,000.
While that’s underpinning wage growth by creating labor shortages, it’s also hurting capacity. Output per hour worked fell at the end of last year, extending a slump that has endured since the financial crisis.
The jobs boom may reflect companies relying on labor to meet demand rather than boosting investment, as hiring decisions are easier to reverse if there is a Brexit-induced downturn, Bank of England policy maker Gertjan Vlieghe said last week.
To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson, Lucy Meakin
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