UK un­em­ploy­ment at 40-year low, in­fla­tion above 2%, but econ­omy is slow­ing

The Star Early Edition - - INTERNATIONAL - Pan Py­las

HOUSE­HOLD in­comes in Bri­tain are be­ing squeezed, even though un­em­ploy­ment has fallen to its low­est level since the mid-1970s, of­fi­cial fig­ures showed yes­ter­day, con­flict­ing de­vel­op­ments that ac­cen­tu­ate the un­cer­tain­ties pol­i­cy­mak­ers are grap­pling with as the coun­try’s exit from the EU looms nearer.

In its monthly up­date on the labour mar­ket, the Of­fice for Na­tional Sta­tis­tics said the un­em­ploy­ment rate be­tween March and May fell to 4.5 per­cent, down 0.2 per­cent­age points from the pre­vi­ous three­month pe­riod. The rate is now at its low­est level since 1975.

Over­all, the agency said the num­ber of peo­ple out of work de­clined by 64 000 dur­ing the quar­ter to just un­der 1.5 mil­lion.

The em­ploy­ment rate, the pro­por­tion of peo­ple aged from 16 to 64 who were in work, was 74.9 per­cent, the high­est since com­pa­ra­ble records be­gan in 1971.

The pos­i­tive news con­trasts with other fig­ures show­ing the econ­omy slow­ing down. In the first quar­ter of the year, the Bri­tish econ­omy grew by a quar­terly rate of 0.2 per­cent, the low­est rate among all the Group of Seven lead­ing in­dus­trial economies.

Em­ploy­ment fig­ures of­ten lag de­vel­op­ments in the wider econ­omy, so the im­pact of the re­cent slow­down may not be felt for some months.

The im­pact could be ac­cen­tu­ated if Brexit talks, which be­gan in earnest last month, fail to make much head­way in the com­ing months.

Big­gest risk

Wor­ries that Bri­tain could crash out of the EU in March 2019 with no trade deal with its for­mer part­ners is, ac­cord­ing to most economists, the big­gest risk fac­ing the coun­try, a worst-case scenario that could lead to many firms ditch­ing the coun­try for con­ti­nen­tal Europe in­stead.

In such a sit­u­a­tion, Bri­tain would op­er­ate un­der World Trade Or­gan­i­sa­tion (WTO) rules, which would see tar­iffs slapped on many of the coun­try’s ex­ports.

Credit rat­ings agency Moody’s warned in a re­port yes­ter­day that Bri­tain’s growth prospects could be ma­te­ri­ally weaker if no free trade deal with priv­i­leged ac­cess to the Euro­pean sin­gle mar­ket is agreed on. Ri­val S&P Global Rat­ings de­liv­ered a sim­i­larly bleak ap­praisal on Tues­day.

“It re­mains un­clear whether the UK gov­ern­ment can even­tu­ally de­liver a rea­son­ably good out­come,” said Kathrin Muehlbron­ner, a Moody’s se­nior vice pres­i­dent and the re­port’s au­thor. “The like­li­hood of an abrupt – and dam­ag­ing – exit with no agree­ment and re­ver­sion to WTO trad­ing rules has in­creased com­pared to our ex­pec­ta­tion di­rectly af­ter the ref­er­en­dum, with the gov­ern­ment so far pur­su­ing ob­jec­tives that im­ply a ‘hard’ exit.”

The im­pact could be ac­cen­tu­ated if Brexit talks fail to make much head­way in the com­ing months.

Con­cern over the eco­nomic im­pact of Brexit is the ma­jor rea­son why the Bank of Eng­land (BoE) cut its main in­ter­est rate last Au­gust to a record low of 0.25 per­cent.

How­ever, some mem­bers of the bank’s Mon­e­tary Pol­icy Com­mit­tee think rates should go up as in­fla­tion is run­ning above the 2 per­cent tar­get, at 2.9 per­cent, and un­em­ploy­ment is fall­ing.

The worry for them is that the Bri­tish econ­omy is run­ning at near ca­pac­ity, which could push up prices fur­ther. It’s a con­cern that is also be­ing voiced by the Fed­eral Re­serve in the US, which has been steadily rais­ing in­ter­est rates.

Other BoE rate-set­ters, how­ever, are likely to point to the con­tin­ued weak­ness of wage growth.

Yes­ter­day’s fig­ures showed av­er­age weekly earn­ings for em­ploy­ees in­creased by 1.8 per­cent in­clud­ing bonuses, and by 2 per­cent ex­clud­ing bonuses, com­pared with a year ear­lier.

Both are be­low in­fla­tion, mean­ing that liv­ing stan­dards are fall­ing, a de­vel­op­ment that’s likely to weigh on spend­ing in the months to come as it has done over the pre­vi­ous few.

Sa­muel Tombs, chief UK econ­o­mist at Pan­theon Macro­eco­nomics, said the re­cent fall in con­sumer con­fi­dence will also likely make work­ers even less will­ing to change roles, de­creas­ing the pres­sure on em­ploy­ers to of­fer higher salaries.

“So de­spite low un­em­ploy­ment, we con­tinue to ex­pect wage growth to re­main in the low 2s, plac­ing lit­tle pres­sure on the MPC to hike rates,” he said.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.