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The number of workers on U.K. company payrolls climbed above its pre-pandemic level as vacancies hit a record high with companies battling staff shortages created by Brexit and lockdowns. The figures from the Office for National Statistics included a 35% surge in job openings in the quarter to 1.03 million, the first time they’ve risen above 1 million. That shows the labor market remained buoyant over the summer even as a resurgence in virus cases and supply disruptions weighed heavily on overall economic growth.
Strength in the jobs market gives an early indication that the economy may be able to absorb many of the 1.6 million that remain furloughed as that program comes to an end this month. That may allow the Bank of England to raise interest rates in the first half of next year, according to Bloomberg Economics.
“The economy is now well-prepared for the end of furlough,” said Kitty Ussher, chief economist at the Institute of Directors, a group representing company executives.
Other groups such as the Resolution Foundation warn that many of those on furlough may end up unemployed, leaving the BOE a dilemma about how much monetary stimulus is needed to return the economy to health. The Institute for Employment Studies pointed out that figures also show the biggest drop in the size of the labor market since the 1990s.
“The biggest risk that we’re now facing is not enough workers rather than not enough jobs,” said IES Director Tony Wilson. “At the same time, there are more than 6 million people outside the labor market because of ill health, caring or studies.”
The number of employees on company payrolls rose a record 241,000 in August, the ONS said Tuesday. Job openings surged 35% in the quarter to 1.03 million, the first time they’ve risen above 1 million.
Many employers are struggling to find staff following a stronger-than-expected recovery from the coronavirus recession. Speaking after figures last week showed the economy rapidly lost momentum in August, Bank of England Governor Andrew Bailey said that “getting jobs filled” rather than unemployment remained the key concern.
“Record vacancies also highlight the acute hiring crisis faced by many firms,” said Suren Thiru, head of economics at the British Chambers of Commerce. “These recruitment difficulties are likely to dampen the recovery by limiting firms’ ability to fulfill orders and meet customer demand.”
What Bloomberg Economics Says ...
“The latest U.K. jobs data suggest the labor market was carrying significant momentum over the summer, putting it in a strong position as it faces up to a tough winter. How employment and wages respond to the furlough scheme ending this month will be central to the timing of any move from the Bank of England. We are expecting a rise in the jobless rate, which will scupper the case for a rate hike in the first half of 2022.”
--Dan Hanson, Bloomberg Economics. Click for the REACT.
For Chancellor of the Exchequer Rishi Sunak, more hiring will relieve strain on the public finances from benefits for the unemployed.
“Our plan for jobs is working,” Sunak said in a statement. “As we continue to recover from the pandemic, our focus remains on creating opportunities and supporting people’s jobs.”
There was no sign of redundancies picking ahead of the expiry of the furlough scheme. Unemployment fell by 86,000 in the three months through July, the ONS, taking the jobless rate to 4.6% from 4.7%. The number of people in work, including those on furlough rose 183,000.
“With the furlough scheme ending in little over two weeks’ time, we should expect a fresh rise in unemployment this Autumn, particularly among furloughed staff that aren’t able to return to their previous jobs,” said Nye Cominetti, senior economist at the Resolution Foundation.
Average earnings grew by 8.3% in the three months through July from a year earlier, pushed higher by distortions created by the pandemic as previously furloughed workers return to full-time pay. The rate of growth slowed to just below its record rate. That would have cost the Treasury billions of pounds had Sunak not suspended the government’s triple-lock pledge to increase pension payments by the greater of average earnings growth, inflation or 2.5%. Sunak said last week that earnings are being removed from the calculation for a year. Demand for staff is still exerting upward pressure on underlying pay, which the ONS estimates to be running at between 3.6% and 5.1% -- above pre-pandemic levels. Some BOE policy makers have expressed concern that more persistent inflation pressures could be building in the labor market.
“Pay may rise further in the coming months, supported by the recovery in the labor market,” said Yael Selfin, chief economist at KPMG U.K.
(Adds vacancy data to top.)
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