Amidst a surprising uptick in unemployment and a slowdown in wage growth, the UK faces economic challenges requiring a multifaceted approach to mitigate the impacts of the recession. Here’s the full story.
Limping Along
The UK economy continues to limp along like a wounded animal desperate to escape the jaws of the cost of living crisis, inflation, and its entry into recession.
Despite the government’s protestations that everything is going according to plan, the latest figures from the Office for National Statistics (ONS) paint a grim picture of the impact of the limping economy on the labour market.
According to the data from the ONS, over the three months leading up to January, unemployment unexpectedly increased from 3.8% to 3.9%, which signals that the economy is beginning to stumble in its flight.
Wage Growth Slowing
As if that were not bad enough, wage growth has also slowed, with annual average wages, including bonuses, dropping to 5.6% from 5.8% the previous month.
Economists in the capital had anticipated a steadier unemployment rate and a more modest decline in pay growth, predicting a 5.7% decrease. However, reality presents a different picture. Pay without bonuses also saw a slight dip, with the rate dropping from 6.2% to 6.1% over the same three-month period.
Hiring Reluctance
One of the main factors contributing to these disappointing economic shifts is employers’ reluctance to hire new staff. The number of advertised vacancies plummeted by an astonishing 43,000 to 908,000, indicating that the recession, particularly during the latter half of 2023, has affected the labour market. It goes without saying that with fewer jobs available on the market, the challenges faced by job seekers in finding work will only increase.
The Bank of England has been closely monitoring wage growth trends in its decision-making process regarding interest rates. With the latest figures officially showing what many workers would know instinctively: a slowdown in wage growth, the Bank may be more likely to consider this a reason to begin reducing interest rates to stimulate economic activity and mitigate the worst excesses of the downturn.
Gloomy Outlook
Despite the gloomy outlook from the ONS data, more recent surveys suggest that, despite everything, UK businesses are regaining confidence in the economic outlook. Some companies are even preparing to raise prices as employees continue to receive pay rises above the headline rate of inflation.
However, it’s worth noting that inflation remains at 4%, double the Bank of England’s 2% target, so increased prices may swallow those raises.
One of the most concerning trends the government faces in its attempts to improve the economy and beat the rising unemployment rates is the increasing number of individuals leaving the labour market, often due to health-related reasons.
Half A Million People
Tony Wilson, the director of the Institute for Employment Studies, highlighted the impact of this trend, stating, “In all, there are well over half a million more people out of work than before the pandemic began. This is being driven by more young people and older people outside the labour force, and in particular because of more people reporting long-term health conditions that stop them from working.”
He continued: “In our view this is holding back the recovery as the economy is continuing to create jobs, with nearly a million unfilled vacancies reported today.” Despite the poor economic numbers, Chancellor Jeremy Hunt views the figures as validation of the government’s economic policies, particularly those related to increasing wages.
“Our Plan is Working”
Trump stated, “Our plan is working. Even with inflation falling, real wages have risen for the seventh month in a row. And take home pay is set for another boost thanks to our cuts to national insurance which in total are putting more than £900 a year back into the average earner’s pocket.”
Despite his positive outlook on the situation, several challenges persist, especially in helping those currently out of work find their way back into employment.
Wilson advocated for a nuanced approach, stating that the government should employ “a different approach to how we reach and engage with people who are out of work and may want to come back to work.”
He noted: “In particular our employment services need to be more accessible, inclusive and supportive. Employers need to play their part too, and do more to keep people in work and to open up opportunities for those who may need more support.”
Limping Onward
As the UK economy limps on through the current economic slowdown, the government must take concrete steps to address the underlying causes of rising unemployment and stagnant wage growth.
One of the first steps to help achieve this would be admitting that there is a problem as the more time passes, the clearer it becomes that sticking their head in the sand is no longer working.
The post – first appeared on Pulse365.
Featured Image Credit: Shutterstock / Victoria Labadie.