- A strong rise in employment pushed the jobless rate down to 4.6% in the latest data, while payrolled employees matched pre-pandemic levels. Strong demand for workers suggests the risk of a significant rise in unemployment when the furlough scheme ends is low.
- Distortions contributed to a near-record pace of pay growth over the summer. But the recently announced increase in employer NICS is likely to present a headwind to pay rises.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“With the furlough scheme closing in September, the latest labour market numbers offered more reassurance that employers are increasingly able to stand on their own two feet. The LFS unemployment rate of 4.6% in the three months to July was 0.3 percentage points down on the previous quarter, aided by a healthy 183,000 rise in employment. The single month rate in July (when remaining COVID-19 restrictions ended) fell to 4.4% from 4.9% three months earlier. And PAYE data showed the number of employees in August rising 241,000 and matching the pre-pandemic level.
“Granted, as of 31 July, 820,000 jobs were still fully furloughed. But August saw over one million job vacancies, a record high. While some mismatch between workers and vacancies is inevitable, strong demand for labour should prevent any significant rise in unemployment later this year.
“Meanwhile, growth in annual average pay of 8.3% in the three months to July was only slightly down on April-June’s record 8.8% year-on-year rise. Base and compositional effects continued to boost the annual comparison, but the ONS’ estimate of underlying growth sat at 3.6%-5.1%, which is above pre-pandemic rates. However, a boost to the supply of workers, post-furlough, could ease pay pressures. And the economic literature suggests that much of next April’s rise in employer NICs will ultimately be passed on to workers via lower wages.”