Money Moves Markets
Don’t exaggerate UK labour market “strength”
January 21, 2022
The UK labour market has recovered impressively but isn’t at risk of “overheating”, as claimed by economists quoted in write-ups of this week’s data.
The number of payrolled employees is at a record but this partly reflects a large number of self-employed people switching to employee status during the pandemic. The comprehensive Labour Force Survey measure of employment remains 600,000 below its peak – see chart 1.
Chart 1
The unemployment rate for the 16-64 age group of 4.2% is almost back to its pre-pandemic low of 3.8% but has been suppressed by a rise in inactivity, which is 1.2 pp higher as a share of the labour force, i.e. the jobless rate would be 5.4% if inactivity had remained stable – chart 2.
Chart 2
High inflation is putting upward pressure on wage settlements but the six-month growth rate of regular earnings (i.e. excluding bonuses) is currently no higher than in mid-2019, at 3.7% annualised – chart 3.
Chart 3
Weak / negative real money growth is likely to be reflected in a loss of economic momentum, implying labour market cooling – chart 4. Vacancies lead and may be peaking – chart 5.
Chart 4
Chart 5
