The Guardian: UK unemployment rises to 4.3% as jobs market cools, but real wages are growing again

That, according to the Resolution Foundation, is the biggest employment fall outside of a recession on record, and a clear sign yet that rising interest rates are cooling the labour market.

Hannah Slaughter, senior economist at the Resolution Foundation, explains:

“Britain saw the biggest employment fall outside of a recession this summer. This is the clearest sign yet that the Bank of England’s rate rising cycle is starting to cool the jobs market.

“But while higher unemployment should lead to lower wage growth in the coming months, it certainly hasn’t had that effect yet, with earnings growing at a record pace.

“The short-term pay boost could end up benefiting pensioners more than workers as it is set to deliver a big permanent boost to the state pension next April. In this context it would be wholly unfair to hold down working-age benefits, especially as poorer households are already set to see their incomes fall next year.”

Biggest employment fall outside of a recession on record shows that rising interest rates are making their mark on the jobs market - @hcslaughter_ responds to the latest @ONS labour market statistics this morning.

— Resolution Foundation (@resfoundation) September 12, 2023

Pay growth continues to present “a conundrum” for the Bank of England” says Yael Selfin, chief economist at KPMG UK.

“The labour market is starting to feel the weight of slowing activity as the UK economy faces several headwinds. The unemployment rate rose to 4.3%, vacancies are down below 1 million, and job-to-job flows have moderated suggesting that workers are less confident to switch positions.

However, earnings growth came in at 8.5% overall and 7.8% excluding bonuses. Today’s pay data has significance not just for monetary policy but also for government spending, as the July figure determines the uprating of pensions next year under the triple lock guarantee.

Despite clear signs of weakening momentum, we still expect the Bank of England to raise interest rates by 25 basis points next week, although the threshold for further increases may be hard to meet given the current economic outlook.”

The UK’s strong wage growth will create challenges for both the Bank of England and the Treasury.

Higher earnings risks keeping inflation higher for longer, while an 8.5% increase in the state pension (under the triple lock system) would leave Jeremy Hunt with less fiscal firepower.

Paula Bejarano Carbo, associate economist at the National Institute of Economic and Social Research, explains:

“Today’s labour market numbers indicate once again that, despite increasing unemployment and falling vacancies, wage growth remains elevated.

Continued high wage growth poses challenges to both monetary and fiscal policymakers. On the one hand, the MPC will need to consider the extent to which this elevated wage growth may continue to generate persistence in inflationary pressures at its meeting next week; on the other hand, today’s data will likely determine another elevated figure for the pensions triple lock, possibly squeezing the tight margin the Chancellor left himself for meeting his fiscal targets.”