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Unemployment rises again

Unemployment rises again

The UK jobs market could be “levelling off”, according to the ONS. UK unemployment rose 25,000 in the second quarter, the first time it has increased in two consecutive months for two years. Meanwhile wage growth slowed to 2.4 percent as compared with 3.2 percent the previous month. 

While disappointing, these figures should not prove cause for concern. The magnitude of the rise in unemployment was small enough to leave the overall rate unchanged at 5.6 percent, and the pace of job creation has been expected to slow for some time as the recovery matures. Growth in pay, although slower, remains robust, and combined with zero inflation this is good news for the UK consumer. This in turn should be positive for economic growth, which I expect to pick up during the second half of the year.It is possible that the disappointing labour market performance in the second quarter was due to firms postponing hiring new workers because of uncertainty over May’s election. If that is the case, we should see a resumption of the labour market recovery in the third quarter.

The Bank of England is watching the labour market closely for signs that ‘slack’ in the economy is being taken up before raising interest rates. Wage growth is thought to be a particularly important indicator of the degree of slack – subdued wage growth in the recovery thus far has signposted that the economy could grow at a faster rate without pushing up inflation. If the labour market does indeed start to level off, this could support the case for leaving interest rates on hold. The Bank surprised markets last week with only one member voting for a rate hike. The minutes of its latest meeting revealed concerns that the strength of the pound and recent further falls in the oil price would mean inflation increasing more slowly than previously thought. Sterling fell on today’s announcement, which could be an indication that analysts feel the timing of the first rate rise is once again being pushed back.

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