Labour Market Slowdown May Ease Interest Rate Rises

The Office for National Statistics (ONS) today published its monthly labour market overview with figures up to September 2022.  The main figures to look out for were:

• 75.5% employment, unchanged from the previous quarter. Up 74,000 and now a record 29.8 million employed in UK.
• 1.1% lower employment than before the coronavirus (COVID-19) pandemic (December 2019 to February 2020).
• 3.6% unemployment, down 0.2%.

In contrast, for the last 3 months:

• 2.7% fall in ‘real earnings’ (wage increases not keeping up with inflation)
• 21.6% of the working age population is now economically inactive (a 108,000 increase in long term sick and those choosing not work and not registering as seeking work).
• Redundancies increased by 21,000 in the quarter to 75,000 per quarter.
• The number of hours worked decreased by 4.2 million hours in the quarter.

There is an expectation that unemployment is now going to increase as interest rate increases, energy price increases and wage demand increases start to ‘bite’ putting more pressure on employers to cut costs i.e., lose staff and the self employed to ‘shut up shop’.

Room for Manoeuvre for Bank of England?

Whilst employment is high, the numbers of economically inactive people, redundancies, lower hours worked combined with higher food, energy and interest payment costs will mean less money in our pockets and inflation may then fall back in November and December from the anticipated records highs (ONS figures out tomorrow).

This may mean the Bank of England can ease off on further interest rate rises if inflation starts to fall and the economy moves into recession as forecast or as we expect, slow down rates increases to just 0.25%pa steps.