Key events
BETA Filters
Key events (2)United Kingdom (5)Bank of England (4)
Samuel Toombs, chief UK economist at Pantheon Macroeconomics, also highlighted the rise in immigration, as well as noting a further rise in the UK unemployment rate:
The unemployment rate is no longer falling and the latest indicators suggest it will start to rise much sooner than the Bank of England expects.
The demand for labor stabilizes just as the supply of labor increases.
The recovery in the workforce is due to an increase in immigration, now that Covid is no longer influencing migration decisions and more UK businesses now have sponsor licences, meaning they can legally employ nationals of other countries. Indeed, the number of nationals of other countries working or looking for work in the UK increased by 248,000, or 6.3%, year-on-year in Q2.
This year’s combination of rising UK wages but stable minimum wage thresholds for UK visas suggests immigration will continue to rise. In the meantime, we think domestic labor supply will continue to increase, as it has during previous contractions in real wages, as households try to maintain their living standards. Accordingly, we think the unemployment rate will start to rise soon, reaching around 4.2% by the end of this year.
Updated at 08.43 BST
Turning to the UK labor market data, James Smith, developed markets economist at ING said:
There are three key takeaways from the latest UK jobs figures. First, hiring demand is clearly slowing, and this is most evident in the drop in job vacancies, a trend that is likely to continue, according to more recent online job vacancy numbers. That doesn’t mean firms are laying off staff — layoff rates haven’t budged from their lowest levels in recent weeks and unemployment doesn’t appear to be rising even if the labor market has stopped tightening.
The second thing that stands out is that the number of inactive people – neither employed nor actively looking for work – rose sharply again last month. Most of the increase in inactivity we’ve seen since the start of the pandemic (and indeed in recent months) has been linked to long-term illness. There are now more than 300,000 extra people who fall into this category compared to pre-pandemic, and the challenges in the NHS suggest that this story will unfortunately not improve very quickly.
The final takeaway is that the number of foreign nationals working in the UK labor market has increased significantly this year after falling earlier during the pandemic, although this is almost entirely due to non-EU workers. The number of EU citizens working in the UK has fallen by more than 6% compared to the 2019 average.
All this paints a complex picture for the Bank of England. Employment demand is easing, but at the same time the skills shortages and labor supply problems that have plagued the labor market for several months show only limited signs of improvement. Inactivity remains high even as migration – a key source of labor shortages during the pandemic – shows some signs of recovery.
Updated at 08.44 BST
UK food price inflation hits 11.6%, highest level since 2008
Separate figures from data firm Kantar showed UK food price inflation hit its highest level since 2008, hitting 11.6% in the past four weeks. Butter, milk, chicken and dog food have risen in price the most.
The average household’s annual grocery bill is now set to jump by £533 to £5,128, which equates to £10.25 every week.
Faced with rising inflation, people are increasingly turning to own-brand products, which are usually cheaper, with sales up 19.7% this month.
The figures also show supermarket sales rose 2.2% in the 12 weeks to August 7, the fastest growth in the industry since April 2021. The extended spell of hot weather led to a 23% jump in sales of mineral water and 18% growth in ice cream sales. People are also shopping for the summer holidays, with sales of clothing such as shorts, dresses, hats and swimwear increasing by 163%.
Fraser McKevitt, head of retail and consumer at Kantar, said:
As predicted, we have now reached a new peak in food price inflation, with products such as butter, milk and poultry in particular seeing some of the biggest jumps. This increase means the average annual shop will increase by a staggering £533, or £10.25 every week if consumers buy the same products as last year.
It’s no surprise that we’re seeing buyers make lifestyle changes to cope with the additional demands on their household budgets. Own brand ranges are at record levels of popularity, with sales up 7.3% and holding 51.6% of the market compared to branded products, the largest share we have ever recorded.
German discount chain Lidl remains the fastest growing grocer with sales growth of 17.9% over the past 12 weeks, increasing its market share to 7%. Buoyed by the popularity of its dairy and bakery lines, this was its highest growth rate since September 2017. Aldi also performed strongly and its market share increased by 0.9 percentage points to 9.1%. Together, Lidl and Aldi earned 1.8% of UK grocery sales over the period, representing a £2.3bn annual shift in spending to the discounters.
McKevitt said supermarkets are running fewer promotions than in the past.
People shop between retailers to find the best value products, but in 2008 there was much more reliance on promotions. These deals are harder to find in 2022 – the number of products sold on sale was 24.7% in the four weeks to 7 August 2022, compared to 30% 14 years ago. Instead, supermarkets currently direct shoppers to their everyday low prices, value ranges and price matches.
In the past month, we’ve really seen retailers expand and advertise their own price ranges throughout the store to reflect demand. Consumers are welcoming the variety of choices and options available to them on the shelves, with sales of private label products increasing by 19.7% this month. As an example, Asda’s Just Essentials range, which launched this summer, is already in 33% of its customers’ baskets.
Updated at 08.41 BST
Here’s our full story on labor market statistics:
Meanwhile, around 16,000 British Airways workers will receive a pay rise of as much as 13%, reversing redundancies imposed during the Covid pandemic.
Union leaders said last night that the deal came about after a threatened strike earlier this summer by registration staff led to a pay agreement that was extended to the entire workforce.
It is understood the deal will apply to around 16,000 non-management staff across the company, including cabin crew, engineers and handlers, helping to restore pay to 2019 levels after the airline cut staff wages , when the pandemic stopped flights around the world.
The ONS said the number of people in full-time work had increased. The number of part-time workers has been increasing since the start of 2021, recovering from a large drop in the early stages of the Covid pandemic, but fell between April and June. The number of self-employed people fell in the first year of the pandemic and remained low, although the number increased in the most recent three-month period.
Some economists say the chances of another half-point interest rate hike from the Bank of England in September have increased after the surge in nominal wage growth, ie. removing the effect of inflation.
Thomas Pugh, economist at audit, tax and advisory firm RSM UK, said:
The jump in regular pay growth to 4.7% in June, which is miles above the 3%-3.5% that is in line with the 2% inflation target, significantly raises the chances that the Monetary Policy Committee (MPC) will went for a second base 50 basis point rate hike in September.
It is true that overall wage growth fell from 6.4% year-on-year in the three months to May to 5.1% year-on-year in June as growth in bonus payments fell to 10.4%. But bonus payments have been volatile recently and the MPC prefers to look at underlying pay growth, which has risen strongly. Indeed, wage growth is rising rapidly in every industry except the public sector.
Add in employment growth of 160,000 and it paints a picture of a very tight labor market. Combine that with rising inflation, which is likely to have hit nearly 10% in July, and we think a 50 basis point increase next month is now more likely than not.
There are indications that the labor market has begun to cool, he noted.
Job vacancies fell by 19,800 in July, the first quarterly decline since June to August 2020. Indeed, much weaker economic growth in the second half of the year due to the cost of living crisis will dampen demand for labor hand and ease the pressure on the labor market. However, we think the smaller pool of available workers will keep the labor market tight for at least the next few years.
The tension in the labor market was reflected in a strong growth in nominal wages. However, real overall wage growth, which takes inflation into account, fell by 2.5%, suggesting the cost-of-living crisis took a bigger toll in June. Real wages are likely to fall by about 3% in 2022, which would be the deepest pressure on purchasing power in history.
Ben Harrison, director of the Work Foundation at Lancaster University, a UK work improvement think tank, said:
Ahead of next week’s energy price cap announcement, there is more bad news for workers as real wages fell by a record 3% for the year. With inflation at 9.4% and the Bank of England predicting it will peak at 13% in early 2024, people in the UK are facing tougher decisions as their regular pay fails to keep up cope with rising prices.
The six million workers in highly precarious jobs will be hit hardest and are already running out of options. Many have…
Add Comment