UK is losing jobs at the sharpest pace since the pandemic

LONDON – The British economy lost jobs again in the quarter until August, marking the longest drop in employment since the depths of the coronavirus pandemic and a sign that inflationary pressures may be abating.

Employment fell 82,000 in June to August after a 133,000 drop in the period from May to July, the Office for National Statistics (ONS) said on Tuesday. It was the third consecutive three-month period in which employment has fallen compared with the previous three months – the worst stretch since early 2021.

The ONS

changed the way it calculates the figures,

which were released on Tuesday after it delayed its unemployment and employment figures “to produce the best possible estimates”.

The new calculations indicate that the labour market may be slightly tighter than the ONS’ previous data had suggested. The revised 133,000 fall in employment in May to July under the new methodology was smaller than the 207,000 drop under the old estimates.

The broader picture shows the labour market is loosening, reducing the upward pressure on wages that concerned the Bank of England. Some economists are now concerned that the rise in unemployment threatens to tip an already stagnant economy into recession.

A separate report from S&P Global on Tuesday showed British businesses are more pessimistic than at any point in 2023, prompting hiring freezes and staff cuts.

Soaring living costs, higher interest rates and falling exports meant the economy “continued to skirt with recession in October”, said Mr Chris Williamson, chief business economist at S&P Global Market Intelligence in a report on Tuesday.

“Gloom about the outlook has intensified in the uncertain economic climate, boding ill for output in the coming months,” he said. “A recession, albeit only mild at present, cannot be ruled out.”

Revised survey

The new labour market figures complicate the narrative for policymakers, who had pointed to the previous ONS data to justify halting a string of aggressive interest-rate increases designed to cool the economy. They expect unemployment to climb gradually, and meet again next week to decide on rates, having left the door open to more hikes.

Economists have questioned the credibility of the old figures after a collapse in the response rates on the ONS’ labour force survey and a heavy reliance on data from older people, who are less likely to work.

The new experimental data on employment and unemployment released on Tuesday is being compared with older figures using the previous methodology. 

The ONS said in a blog post that it has used claimant count figures and payroll data from HM Revenue & Customs to underpin the new experimental data after two months “where survey response has been particularly low”.

“We see enough corroborating evidence to think the official labour market statistics are correctly signalling greater slack,” said Ms Gabriella Dickens, an economist at Pantheon Macroeconomics.

The pound edged up against the dollar after the release. It traded 0.2 per cent stronger at US$1.2277, rising for a fourth straight day to touch an almost two-week high. Traders pared back bets on the likelihood of future rate rises, pricing in less than a 50 per cent chance of another hike by February.

Unemployment held at 4.2 per cent under the new calculation, lower than the 4.3 per cent figure that the ONS previously released. That is the highest in almost two years and up from as little as 3.5 per cent a year ago, when companies were hiring rapidly after the end of Covid-19 lockdowns.

The central bank expects the jobless rate to rise to almost 5 per cent by the third quarter of 2026 as rate increases slow demand in the economy and curtail inflationary forces. That is still below the 6.4 per cent unemployment rate in the euro zone.

“This new metric shows that in the latest period the employment rate was down a little, with small rises in the rates for both unemployment and those neither working nor looking for work,” said Mr Darren Morgan, director of economic statistics at the ONS. “This is part of our transformation of the way we measure the labour market where we are introducing an improved Labour Force Survey, asking more people in different ways about their employment status.”

Prime Minister Rishi Sunak’s government has been focused on pushing more people into work and tightening rules on who can claim benefits. The aim is to reduce the level of inactivity – people out of work and not looking for jobs.

Britain lost at least 500,000 people from the workforce during the pandemic, prompting companies to bid up wages to secure the staff they needed to grow and feeding inflationary pressures.

While many of those workers have now returned, companies complain they have difficulty finding people with skills to do the jobs they have open.

The ONS said that economic inactivity edged up 0.1 percentage point to 20.9 per cent under its experimental estimates, though it did not explain what had driven the increase.

A sharp rise in activity since the pandemic has been caused by soaring long-term sickness, early retirement and more students, fuelling worker shortages. However, it has started to unwind again. 

“Today’s statistics also show inactivity has fallen by over a quarter of a million since the pandemic peak,” said Secretary of State for Work and Pensions Mel Stride.

“Growing the economy is our priority. That’s why we are bearing down on inflation and bringing in the next generation of welfare reforms to drive down inactivity and help more people into work.” BLOOMBERG