Risk of a shakeout in labour market if recovery continues to disappoint, says ITEM Club
Nida Ali, economic advisor to the EY ITEM Club, comments on today’s labour market figures:
- The labour market strength finally appears to be waning
- If the recovery continues to disappoint, there is a risk of a shakeout in the labour market
- Wage growth is still very weak and with the recent jump in inflation, there is little respite for household finances
“The labour market strength finally appears to be waning, given a slowdown in the rate of increase in employment and a rise in the claimant count. In our view, this seems like an accurate reflection of the ongoing weakness in the wider economy and we expect a further slowdown in the months ahead.
“The rise in employment suggests that that some firms are expanding their workforce to cope with increased demand, while others are hanging on to staff in the expectation of an upturn. But looking ahead, if the recovery continues to disappoint, there is a risk of a shakeout in the labour market.
“Wage growth under 2% makes for uncomfortable reading, especially in light of the recent jump in inflation. We don't expect wage growth to pick up anytime soon, with firms using lower pay as a way of avoiding cutting staff numbers, while inflation will probably level off at an elevated rate in the near-term. As such, there will be little respite for squeezed household finances in the short term.”