The UK economy has experienced a continued decline in employment, marking the longest stretch of job losses since the height of the COVID-19 pandemic. This latest development suggests that inflationary pressures may be easing. According to the Office for National Statistics (ONS), employment fell by 82,000 between June and August, following a drop of 133,000 between May and July. This marks the third consecutive quarter in which employment has fallen compared to the previous three months, making it the worst period since early 2021.
The ONS has revised its calculations for these figures, stating that the new methodology indicates a slightly tighter labor market than previously estimated. The revised figure of a 133,000 drop in employment under the new methodology is smaller than the previously estimated 207,000 decrease. This adjustment sheds new light on the labor market, which is showing signs of loosening. The loosening labor market could alleviate concerns about upward wage pressure that the Bank of England had been monitoring. However, some economists now worry that the increase in unemployment could push the already stagnant economy into a recession.
Additionally, a separate report from S&P Global reveals that UK businesses are more pessimistic than at any point this year. This sentiment has led to hiring freezes and staff cuts. Rising living costs, higher interest rates, and declining exports have contributed to the economic struggle. Chris Williamson, chief business economist at S&P Global Market Intelligence, warns that the economy has been “skirting with recession in October.” He states that the outlook is bleak, and while the current recession is mild, it cannot be ruled out.
These new labor market figures complicate the situation for policymakers, who had relied on previous ONS data to justify a pause in aggressive interest rate increases aimed at cooling down the economy. With unemployment expected to rise gradually, policymakers will meet next week to decide on rates, while keeping the possibility of more hikes open.
However, economists have raised concerns about the credibility of the old figures due to low response rates on the ONS’s labor force survey and a reliance on data from older individuals who are less likely to be employed. The new experimental data on employment and unemployment released by the ONS is now being compared to older figures using the previous methodology. The ONS has stated that it used claimant count figures and payroll data from HM Revenue & Customs to support the new experimental data following two months of low survey responses.
Following the release of the data, the pound strengthened against the dollar, reaching its highest level in nearly two weeks. Traders have adjusted their expectations of future rate increases, now pricing in less than a 50 percent chance of another hike by February.
These latest developments in the UK labor market and business sentiment highlight the challenges the economy faces. As policymakers grapple with uncertain data and the potential for a recession, it remains to be seen how the UK will navigate these difficult times.
More detail via The Straits Times here… ( Image via The Straits Times )