According to new figures, the UK job market is showing signs of stalling as employment numbers recently dipped. The unemployment rate also rose to 4.2% from December through February, marking the highest figure in the past six months. Furthermore, the economically inactive population, or those who are not looking to work, saw a rise.
Economists indicate that such figures might prompt the Bank of England to cut interest rates in the summer. Paul Dales, chief UK economist at Capital Economics, said: “With employment falling sharply and the unemployment rate climbing, we suspect wage growth will continue to ease in the coming months. That may allow the Bank to cut interest rates in June.” Meanwhile, Yael Selfin, Chief Economist at KPMG UK, shared that “easing pressure in the labour market keeps the Bank on track for a summer rate cut.”
The Office for National Statistics (ONS) has reported “tentative signs that the jobs market is beginning to cool.” However, other statistics showed that average wage growth, excluding bonuses, only edged down slightly from 6.1% to 6%, but exceeded expectations by a considerable margin. Wage growth is significant for the Bank of England when deciding whether to cut interest rates because it can fuel inflation, which measures the rate at which prices are increasing.
The inflation rate has been gradually decreasing, from a record high to 11.1% in October 2022, it slowed to 3.4% throughout the year from February, and it is expected to display further deceleration with new data for the 12 months to March, which is due out soon. However, while the Bank of England aims to keep inflation at 2%, and if wages continue to increase, there is a risk that inflation could go higher. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, noted: “Even though headline inflation is on track to hit its target in the next few months, policymakers are concerned that persistently high pay might cause it to pop back up, and this snapshot does very little to alleviate those fears.”
Overall, the ONS reported that the UK’s unemployment rate rose from 3.9% in the three months to January, which is a number that is higher than economists anticipated, and the level of employment decreased to 74.5% from December to February. Meanwhile, the percentage of 16 to 64-year-olds categorized as economically inactive surged from 21.8% to 22.2%, which translates to 9.4 million people
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