UK labour market proving resilient
Commenting on the latest UK labour market statistics, Chris Williamson, chief business economist at IHS Markit economist, said:
“Official data reveal only tentative signs of the UK labour market being hit by the EU referendum, remaining fairly resilient up to July. However, more timely survey data suggest there will be worse to come.
“The headline unemployment rate held steady at 4.9%, but the number is based on a three month average. The rate for July alone – the latest available – was down to 4.7%, its lowest for eleven years (since September 2005), according to the Office for National Statistics.
“The number of people claiming jobless benefits also rose in August, adding to the survey evidence that the labour market continued to cool last month.
“Adding to the gloom, wage growth slowed. Excluding bonuses, underlying annual pay growth slipped to 2.1% in the three months to July.
“There was better news on employment, which rose by a healthy 174,000 in the three months to July, and the number of job vacancies rose by 6,000 in July alone. However, the employment and vacancy data are too volatile to place much emphasis on (see charts). The surveys, which cut through the official data volatility, show a more worrying trend.
“Surveys of both purchasing managers and recruitment agencies have indicated a marked cooling of the labour market in recent months, especially in the wake of the EU referendum. Even with a slight rebound in August, the PMI surveys have signalled the weakest hiring trend seen since the end of 2012 in recent months.
“Recruitment agencies have meanwhile reported declines in the number of people placed in permanent jobs in both July and August. This is the first time that back-to-back monthly falls in the number of people placed in new jobs has been seen for four years.
“Anecdotal evidence from the surveys reveal that the demand for staff has been hit by worries about Brexit and the resulting uncertainty about the economic outlook, which have compounded a slowing trend in the pace of hiring that had already been evident since the start of the year.
“The surveys also indicate how staff availability has continued to deteriorate in recent months, reflecting high overall levels of employment in the economy. But wage pressures have cooled considerably in line with the weakening of demand for staff.
“We expect that the combination of weak wage growth and rising inflation will squeeze households’ budgets, constraining consumer spending in coming months. With consumer spending having been a key driver of economy growth, this clearly adds to the risk of a steep slowing in the pace of growth as we head into 2017.”
