Hot UK labor market cools and inflation eats wages

Workers walk to work during the morning rush hour in the financial district of Canary Wharf in London, Britain January 26, 2017. REUTERS/Eddie Keogh/File Photo

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  • Unemployment rate remains at 3.8%, near its lowest level in half a century
  • But job growth was weaker than expected
  • Vacancies fall for the first time in mid-2020
  • Inflation-adjusted profits fall the most on record
  • Faster growth in base wages may worry the BoE

LONDON, Aug 16 (Reuters) – Britain’s hot labor market showed signs of slowing in official data released on Tuesday as companies grew more cautious about hiring and workers suffered a record drop of their base salary once adjusted for the surge in inflation.

The unemployment rate of 3.8% in the three months to June remained unchanged from last month’s report, close to a half-century low despite warnings from the Bank of England according to which the economy is likely to slide into recession later this year.

The number of people at work rose by 160,000 in the April-June period from the previous quarter, but that was far less than expected in a Reuters poll of economists, which had indicated an increase of 256,000.

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The number of unemployed increased slightly, pushed by returns to the labor market in search of work.

Vacancies in the three months to July fell for the first time since mid-2020, but remained near a record high at 1.274 million.

Jake Finney, an economist at accounting firm PwC, said he expected the continued shortage of workers available to fill vacancies to limit the unemployment rate.

“Although hiring efforts are slowing, we expect the unemployment rate to remain relatively stable for the remainder of this year,” he said. “Faced with labor shortages, UK businesses are more likely to hoard than shed labour.”

The BoE expects the unemployment rate to only start rising from mid-2023 before climbing to 6.3% in three years.

The central bank raised its borrowing costs the most since 1995 earlier this month and said it remained ready to act forcefully if that pressure became more persistent.

Britain’s labor market has emerged from the coronavirus pandemic with unemployment at its lowest level since 1974, largely due to a shortage of domestic and overseas workers.

In response, employers raised their salaries to attract and retain staff.

Data from the ONS showed non-bonus wages in the second quarter were 4.7% higher than a year earlier, accelerating between the three months of May and potentially adding to BoE concerns.

But despite the acceleration in base pay, workers are increasingly hurt by soaring inflation.

Incomes adjusted for the consumer price index fell 4.1%, the biggest drop since records began in 2001.

“The scale of this wage pain is even deeper than official figures suggest, as wage growth estimates are still artificially boosted by the effects of the furlough scheme last year,” said Nye Cominetti, Senior Economist at the Resolution Foundation Think Tank.

Figures due out on Wednesday are expected to show consumer prices rose 9.8% in the 12 months to July, according to economists polled by Reuters, and the BoE expects that that they reached 13.3% in October, their highest level since 1980.

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Reporting by William Schomberg Editing by David Milliken and Raissa Kasolowsky

Our standards: The Thomson Reuters Trust Principles.

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