Glass half empty or full? The two ways of viewing latest UK jobs figures

There are two ways of looking at the state of Britain’s labour market. In one it is a case of the glass being half full, in the other half empty.

If you are a government minister you take the former view. Nadhim Zahawi said the unemployment rate of 3.8% has rarely been lower in decades and the chancellor is right about that.

What’s more, the economy continued to create net new jobs in the three months to June, with employment rising by 160,000 over the quarter. Flash estimates suggest the pattern continued into July.

With job vacancies at near-record levels, the labour market looks in good shape to withstand the recession the Bank of England is forecasting for the UK. The economy contracted slightly in the three months to June, but demand for workers remained strong.

That’s the upbeat way of looking at the latest jobs figures from the Office for National Statistics. Ruth Gregory, UK economist at Capital Economics, says “by any metric the labour market is still very tight”.

A glass half empty observer sees things differently, and would point to the slower pace of employment growth, evidence that job vacancies are past their peak and the record gap between regular pay (unadjusted for bonuses) and the rate of inflation.

Samuel Tombs, the chief UK economist at Pantheon Macro, says demand for labour is stabilising just as the supply of workers is picking up. The increase in the size of the workforce is being driven by immigration, he notes, with the number of non-UK nationals either working or looking for a job rising by almost 250,000 in the past year.

The domestic labour force is also likely to increase as people try to maintain their living standards at a time when cost of living pressures are intensifying, and this will lead to higher unemployment as a weakening economy leads to fewer job opportunities.

Ultimately, the labour market data shows where the economy has been but doesn’t necessarily show where it is heading. Employment growth was healthy as the UK came out of lockdown. Annual regular pay growth has picked up to 4.7% as firms have struggled to find workers.

The question is whether those days are now in the past, as the Bank of England certainly thinks. Threadneedle Street sees a protracted recession pushing the unemployment rate to above 6% by 2025. Judging by the most up-to-date evidence, that process has started.