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UK Labour Market: Job Creation Fails To Heat Up Over The Summer

The employment rate came in at 75.2% in the three months to July, versus 75.3% in June. Unemployment came in at 4.7%, in July, versus 4.7% in June and market expectations of 4.7%. Economic Inactivity in the three months to June came in at 21.1%
Annual total earnings growth came in at 4.7%, versus 4.6% in the previous three-month period, and market expectations of 4.7%.

Nicholas Hyett, Investment Manager at Wealth Club said:
“On one level this data shows a stable labour market performing as expected - albeit not particuarly strongly. Unemployment is holding steady and in line with expectations, while wages continue to rise faster than inflation.

However, underneath that there are some worrying signs. Vacancies have fallen by 10,000 in the quarter to August, a 38th consecutive fall, and is less than half the number of people currently claiming unemployment benefits. With the estimated number of work force jobs also falling, it looks like the UK economy is simply not creating enough jobs and that problem is slowly worsening.

With wages rising faster than inflation, and inflation itself still high, it seems unlikely the Bank of England will ride to the rescue with interest rate cuts in the near term. This is not the pro-growth economy the government was hoping for when it was elected, and there is a real danger that economic conditions continue to cool as we go through autumn.”

Responding to the latest ONS labour market data, Alex Hall-Chen, Principal Policy Advisor for Employment at the Institute of Directors, said:

“Today’s data reflects a further weakening in employer demand for labour, with vacancies falling by 1.4% over the quarter and a small decrease (8000) in payrolled employees on the month.

"A perfect storm of government policies via the Employment Rights Bill, above-inflation increases to the National living Wage, and the increase in Employer National Insurance Contributions have significantly weakened the business case for hiring staff.

“An IoD survey of over 600 business leaders last month found employment regulation is the biggest regulatory blocker to business growth in the UK, with 45% citing it as a barrier to their company growing. At the same time, six in 10 cited employment taxes as negatively affecting their organisation.

“The government's refusal to engage with sensible amendments made to the Employment Rights Bill in the House of Lords is sending a clear signal to businesses that their concerns are being ignored. With the return of the Employment Rights Bill to the Commons, we urge government to engage meaningfully with business to address its key concerns and restore business confidence in hiring.”

Jane Gratton, Deputy Director of Public Policy at the British Chambers of Commerce said:

“The ongoing impact of business cost pressures, most notably from the national insurance hike, continues to hit the labour market.

“Unemployment remains high and vacancies continue to fall with firms having to make difficult decisions on recruitment. Average earnings, including bonuses, gives a better picture of what businesses are facing, and between May and July that picked up to 4.7%.

“Our latest survey showed labour costs remain the biggest cost pressure for SMEs, cited by 73% of firms. Continued wage growth is also impacting the wider economy. The Bank of England Governor told our annual conference in the summer that it is an important factor behind persistent services inflation.

“Further employment costs are looming for businesses. The £5bn cost associated with the Employment Rights Bill poses a further threat to firms’ investment and recruitment plans. Without further amendment, the legislation will add even more to employers’ costs.

“Firms can’t absorb further cost pressures. That's why we are clear, there must be no more taxes on business in November’s Budget. The Chancellor must also use her statement to invest in workforce health and skills, two issues currently hampering the business growth we all want to see.”