Predictions that interest rates will remain unchanged in November have been reaffirmed by indications that the labor market in the United Kingdom is slowing down.
From June to August, the unemployment rate increased to 4.2% from 4% in the March-to-May quarter but remained unchanged from the previous month’s figures.
Implications of Rising Unemployment
There appears to be a decline in business recruitment activity as the consequences of rising prices and interest rates become more apparent.
In recent months, the United Kingdom has also witnessed a sluggish economic expansion.
Bank of England’s Deliberations
The Office for National Statistics (ONS) stated that, to provide data that are as representative of the real world of work as possible, August employment figures were calculated slightly differently than usual.
A Possible Mild Recession
The Bank of England will decide next week whether to keep, increase, lower, or maintain the 5.25% rate.
Ongoing Economic Challenges
The benchmark rate remained unchanged at its most recent meeting in September, ending a fourteen-month cycle of increases. Andrew Bailey, the governor of the Bank, stated at the time that “increasing signs” indicated that higher interest rates were starting to harm the economy.
Starting with rate hikes in December 2021, the Bank sought to curb rising consumer price increases.
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However, striking a balance is crucial; rapid increases in interest rates could potentially discourage businesses and consumers from making investments and spending, thereby hindering economic growth.
Increased debt repayments from interest rate fluctuations affect employers’ plans a year later.
A member of the interest rate commission at the Bank of England stated that most of the effects of the interest rate hike had not yet materialized in the economy, with younger and lower-paid workers potentially bearing the brunt of the consequences.
After a sharp decline in July, official data showed that the United Kingdom returned to growth in August. However, economists warned that the economy was “barely moving forward” and predicted that the Bank of England would decide to keep interest rates on hold once again in November.
According to Ashley Webb, an economist at the forecasting firm Capital Economics in the United Kingdom, the employment data released on Tuesday further increased the likelihood of that outcome.
Senior UK economist at Pantheon Macroeconomics, Gabriella Dickens, stated that the figures “added to the evidence” that interest rates would remain unchanged. Thomas Pugh, of consultancy RSM UK, predicted that the Bank would probably “wait to see wage growth and inflation return to more normal levels” before resuming rate hikes.
Despite the United Kingdom not currently experiencing a recession, concerns have been raised about slow growth; the economy is expected to be a major battleground in the General Election next year.
A closely watched economic survey revealed on Tuesday that the output of private sector companies had declined for the third consecutive month.
As a result, analysts from Capital Economics predicted that “a mild recession has started, and the Bank of England has finished raising interest rates.”
Head of personal finance at investment firm Hargreaves Lansdown, Sarah Coles, stated that while “there is no clear overall shift in job losses just yet,” the United Kingdom must “prepare for more challenging times ahead.”
“This isn’t the agony of a collapsing job market; it’s the chronic malaise of an economy growing gradually weaker,” she said.
Between June and August, the ONS estimated that employment in the United Kingdom, or the percentage of the population in paid work, decreased slightly to 75.7%.
Additionally, the economic activity rate, which measures individuals who are neither actively seeking employment nor ready to start one, increased by a fraction of a percent to 20.9%.
Neil Carberry, chief executive officer of the Recruitment & Employment Confederation, stated that the labor market had been “returning to normalcy following the post-pandemic boom” and that unemployment remained historically low.
“While vacancies are decreasing, they are still above their 2019 levels,” he continued. “However, sector demand varies significantly, and workers may need to make additional transitions to new areas to find new positions.” This transition is a key driver of the rise in unemployment rates.
Work and Pensions Secretary Mel Stride stated that promoting economic growth was a “priority” and that the government was “implementing the next generation of welfare reforms to reduce inactivity and help more individuals find employment.”
He stated that there were currently “more than one million more people on company payrolls compared to 2019, nearly a record high, and today’s statistics also show that inactivity has fallen by over a quarter of a million since the pandemic peak.”
However, Labour’s shadow work and pensions secretary, Liz Kendall, stated that the statistics “reiterate that the Tories’ abhorrent economic management is failing the nation.”
