In the three months to May, the number of people working in the UK increased by the most since mid-2021, while the unemployment rate remained at a half-century low, indicating that the cost-of-living crunch has not yet impacted demand for workers.

With the Bank of England concerned about the danger of inflationary heat in the labor market, official statistics revealed that more individuals were available for work, potentially undermining the argument for a larger-than-usual rate rise next month.

The Office for National Statistics recorded a 296,000 rise in the number of persons working, the biggest since the three months to August of previous year.

A Reuters survey of economists predicted a 170,000-person rise.

The unemployment rate remained at 3.8 percent, contradicting a poll expectation of 3.9 percent.

While the workforce size is smaller than it was before to the COVID-19 epidemic, the number of persons in full-time employment reached a record high, while the number of self-employed people remained lower.

The evidence of ongoing robust hiring may boost the Bank of England’s confidence in hiking interest rates for the sixth time since December next month, as it attempts to combat the rise in inflation into the double digits.

ALARM SYSTEMS

However, there was no strong indication in the statistics that the central bank should be concerned about additional inflationary pressures in the labor market, necessitating a rate hike of more than a quarter percentage point.

According to Samuel Tombs, an economist at Pantheon Macroeconomics, the 0.8 percent three-month-on-three-month growth in the workforce size in May was the biggest since January 1984.

“The labour market no longer is tightening, easing the pressure on the Monetary Policy Committee to step up the pace of its rate hiking cycle,” he added.

However, Ruth Gregory of Capital Economics believes the large gain in employment will put more pressure on the MPC to vote for a half-point hike on August 4.

According to ONS statistics, the number of new redundancies decreased to 51,000 in the three months to May, the lowest level since at least the mid-1990s, when records began.

According to Refinitiv data, investors were pricing in an 86 percent likelihood of a 50 basis-point boost next month on Tuesday.

The Bank of England has said that it would move strongly if it believes that the increase in inflation, which is forecast to reach 9.3 percent in June numbers due on Wednesday, is becoming rooted in the economy.

The Office for National Statistics said that regular wage growth increased marginally in the three months to May, at 4.3 percent.

However, when corrected for the consumer price index, this was the largest drop in records dating back to 2001.

Total pay growth, including incentives, dropped to 6.2 percent from 6.8 percent.

Due to the labor scarcity, many firms have resorted to offering incentives in order to recruit or keep employees.

A decline of 144,000 “inactive” persons – those who are neither working nor searching for employment – was the largest since just before the pandemic reached Britain, perhaps alleviating the Bank of England’s worries about inflation pressures in the labor market.

Source: Reuters

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