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UK unemployment rate slumps to 48-year low but more Britons quit jobs market

·3-min read

Britain’s unemployment rate has hit its lowest level since 1974 but the number of workers dropping out of the jobs market also jumped higher, according to official figures.

The Office for National Statistics (ONS) said the unemployment rate fell to 3.6% in the three months to July – the lowest rate since May to July in 1974.

Most economists had been expecting the unemployment rate to hold steady at 3.8%.

Annual change in inflation-adjusted pay
(PA Graphics)

However, the figures showed that the so-called economic inactivity rate rose to 21.7% – its highest level for more than five years.

The ONS said those classed as economically inactive rose by 194,000 in the quarter to 9 million, due mostly to rising numbers of long-term sick as well as students, which has led to a shrinking labour market.

Britain’s inactivity rate has also been pushed higher in the past few years as older workers have chosen to retire early throughout the pandemic.

Experts said this will cause further concern among policymakers at the Bank of England in their battle to rein in inflation, as shortages of workers in the market is driving up wage growth and firms are responding by hiking prices.

But there was some sign that worker demand may be easing, with a 34,000 drop in the number of vacancies to 1.27 million in the three months to August – the biggest quarterly fall for two years.

The figures also revealed that the employment rate eased back to 75.4% in the three months to July, with the number of employed rising by a far smaller-than-forecast 40,000 to 32.7 million.

The more timely figures for payrolled workers in the UK showed a rise of 71,000, or 0.2%, between July and August to 29.7 million, the ONS said, although these figures are often subject to big revisions.

Pay growth v inflation
(PA Graphics)

Workers likewise saw their pay continue to fall behind sky-high inflation despite another steep hike in earnings as the cost-of-living crisis hit hard.

The ONS said regular pay, excluding bonuses, grew by 5.2% over the three months to July.

But, with Consumer Prices Index (CPI) inflation taken into account, real pay tumbled by 3.9% year-on-year, according to the ONS.

It comes after CPI inflation jumped to a fresh 40-year high of 10.1% in July as energy and food bills sent living costs racing higher.

The Government’s move to freeze energy bills at £2,500 is set to rein in the peak in inflation but wages are still unlikely to keep pace with rising costs.

The ONS added that total pay including bonuses lifted by 5.5% for the three-month period, falling by 3.6% with inflation taken into account.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the jobs figures were “grim”, showing “the recovery in employment has petered out”.

James Smith, at ING, added: “The number of workers classified as long-term sick has jumped dramatically in the past couple of months, and that’s one reason why firms are still struggling to source the staff they need.

“While worker demand has cooled, Bank of England hawks will be worried that these shortages will continue to push up wage growth.”

He added this will reinforce the case for more hefty interest rate rises.

“Persistent worker supply constraints coupled with so far only modest signs of reduced hiring demand will provide further ammunition for Bank of England hawks to push ahead with further tightening,” he said.