The United Kingdom is facing significant labor shortages like never before.
London CNN, The United Kingdom has reached a record high in employment, surpassing pre-pandemic levels for the first time. However, this achievement has not resolved the worker shortages that are driving up wages and complicating Britain’s inflation problem.
Between February and April, employment reached a record 33.1 million, with an increase in the number of employees and self-employed workers, according to the Office for National Statistics (ONS).
The sectors experiencing the most significant job gains were health and social care, followed by hospitality, as reported by Darren Morgan, the ONS director of economic statistics.
Compared to other major economies, the UK’s employment recovery since the pandemic has been slower, as stated by the UK Institute for Employment Studies. Tuesday’s job figures will be welcomed by the government, which introduced a range of measures in March to encourage parents, retirees, and individuals with disabilities or poor health to return to work.
However, labor shortages continue to hinder economic growth and drive up wages, contributing to inflationary pressures. The ONS reported that average regular pay, excluding bonuses, increased by 7.2% during the February-April quarter compared to the same period in 2022.
Morgan noted this is the fastest rise on record, except for the pandemic-distorted period.
Economists attribute the rise in pay partly to the approximately 10% increase in the national minimum wage in April. Nevertheless, this data adds to the Bank of England’s concerns about entrenched inflation in the economy.
Financial markets have already priced further interest rate hikes to curb rising prices. The yield on UK government bonds, known as gilts, maturing in two years, is now higher than the peak reached during a sharp sell-off last fall.
Gilt yields, which move in the opposite direction to prices, surged in late September following the rejection by investors of then-Prime Minister Liz Truss’s announcement to cut taxes and increase borrowing to boost growth. Investors feared this plan would exacerbate already-high inflation and create an unsustainable level of public debt.
While current Finance Minister Jeremy Hunt’s plans to reduce government debt have calmed financial markets, investors now anticipate that the UK’s persistent inflation problem will lead to a fresh surge in borrowing costs.
“Overall, the loosening in the labor market appears to have stalled in April, and wage growth remained very strong,” said Ashley Webb, a UK economist at Capital Economics. “This supports our view that the Bank will raise interest rates from 4.5% to 4.75% next Thursday and eventually to a peak of 5.25%.”
Despite substantial pay increases, inflation continues to outpace them. Consumer prices in April rose by 8.7% compared to the previous year, exceeding inflation rates in Europe and the United States. Food inflation remained above 19%, nearing a 45-year-high, impacting low-income households the most as they spend more of their available income on food.
Insufficient workforce
There is still a surplus of unfilled jobs, particularly in the construction, retail, and agriculture industries.
According to the ONS, despite the number of vacancies decreasing for the 11th consecutive period, employers have been cautious about hiring due to economic uncertainty.
During the March-to-May period, total vacancies fell below 1.1 million but remained at 250,000, higher than the pre-pandemic level in March 2020.
Worker shortages due to long-term sickness continue to be a significant factor, with the number of individuals not working due to this reason reaching a new record above 2.5 million.
