For financial professionals in Italy

Don’t exaggerate UK labour market “strength”

Simon Ward

Simon Ward

Economic Adviser


21 Jan 2022

The UK labour market has recovered impressively but isn’t at risk of “overheating”, as claimed by economists quoted in write-ups of this week’s data.

The number of payrolled employees is at a record but this partly reflects a large number of self-employed people switching to employee status during the pandemic. The comprehensive Labour Force Survey measure of employment remains 600,000 below its peak – see chart 1.

Chart 1

UK Employment Measures (mm)

The unemployment rate for the 16-64 age group of 4.2% is almost back to its pre-pandemic low of 3.8% but has been suppressed by a rise in inactivity, which is 1.2 pp higher as a share of the labour force, i.e. the jobless rate would be 5.4% if inactivity had remained stable – chart 2.

Chart 2

UK Unemployment & Inactivity

High inflation is putting upward pressure on wage settlements but the six-month growth rate of regular earnings (i.e. excluding bonuses) is currently no higher than in mid-2019, at 3.7% annualised – chart 3.

Chart 3

UK Average Weekly Earnings (%6m annualised)

Weak / negative real money growth is likely to be reflected in a loss of economic momentum, implying labour market cooling – chart 4. Vacancies lead and may be peaking – chart 5.

Chart 4

UK GDP & Real Money / Bank Lending (%6m)

Chart 5

UK Private Sector Vacancies (Single Month, 000s, sa)

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

Marketing Communication.

 

Glossary