- The latest labour market data shows job creation continues to benefit from the economy reopening. Notably, a further climb in the number of pay-rolled employees in July left the total only 0.7% shy of its pre-pandemic level.
- With job vacancies at a record high and the share of workers on furlough falling, the risk of job losses rising significantly when the Job Retention Scheme ends in September looks low. Meanwhile, inflationary pressures from pay growth are not quite as heated as June’s record pace suggested.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The speed at which the jobs market is recovering continues to surprise to the upside. The Labour Force Survey jobless rate in the three months to June fell to 4.7%, down from 4.9% in the previous quarter, while the official measure of employment rose by 95,000 over the same period. Data from HMRC showed 182,000 more paid employees in July than a month earlier. This left employment rated on this measure just 201,000, or 0.7%, below the pre-pandemic level, compared to a shortfall of 918,000 or 3.2% in January.
“Looking ahead, the jobless rate could feasibly creep up in the short-term: an easing of restrictions has made searching for a job easier, and this could result in people moving from inactivity to seeking a job and therefore being picked up in the numbers again. But the risk of a serious increase in joblessness when the furlough scheme closes in September looks low. Job vacancies passed 1 million in July for the first time ever, and the ONS’ latest BIC survey showed the share of workers on furlough falling to 3.7% in late July – the smallest share since the pandemic began.
“Meanwhile, average weekly pay in the April-June period rose 8.8% year-on-year, the highest since records began in 2001. With compositional effects and people increasingly moving from furlough to work boosting the headline number, the inflationary pressures from pay aren’t quite as heated as the headline numbers suggested. That said, the ONS thinks underlying pay growth was 3.9% to 4.5% above pre-pandemic rates. So, while the alarm bells aren’t ringing yet, the MPC will likely be keeping a careful eye on where pay rises go from here.”