Press release

11 Oct 2022 London, GB

Still-tight jobs market adds to likelihood of interest rate hike – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to EY ITEM Club, provides comments on the latest public finance news.

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  • A fall in employment and job vacancies over the late summer indicates weaker activity impacting the UK labour market. However, the labour market still looks tight in absolute terms as the jobless rate fell to a near-48-year low, inactivity rose, and pay growth accelerated.
  • The EY ITEM Club expects that the current state of the jobs market, will increase the likelihood of the Monetary Policy Committee increasing interest rates in November.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The latest labour market statistics showed very low levels of unemployment, thereby disguising evidence that tightness in the jobs market may be easing. The Labour Force Survey (LFS) jobless rate fell to a near-48-year low of 3.5% in the three months to August, however the number in work in the same period was down 109,000 on the previous quarter - partly reflecting May's very strong gain dropping out of the three-month comparison. The survey also showed that job vacancies have continued to decline over the late summer, from the record high reached earlier this year.

“Lower employment was reconciled with a fall in unemployment, by a rise in inactivity. The share of people aged 16-64 not in work or actively seeking employment increased to 21.7%, this is 1.4ppts higher than before the pandemic. This is one indication that while the jobs market may be loosening, it's still tight in absolute terms. Another indicator is average pay growth, which picked up to 6% year-on-year over June to August on a total basis. Regular pay growth increased to 5.4%, which is a record high outside the pandemic period, and a pace which the Monetary Policy Committee will certainly consider as a risk to its inflation fighting goal. Overall, the latest numbers add to the likelihood that the committee will increase the Bank Rate in November.”