Million job vacancies and soaring wages fuel UK inflation fears

The strong recovery in the labor market was highlighted in data released Tuesday by the Office for National Statistics and could further fuel inflationary pressures in the UK economy. This could prompt the central bank to raise interest rates as early as May 2022, according to some economists.

Job vacancies across all industries have increased, with arts, entertainment and leisure registering the fastest rate of growth after all remaining social distancing restrictions in England were lifted on July 19.

“The world of work continues to rebound vigorously from the effects of the pandemic,” Athow said in a statement.

The unemployment rate fell 0.2 percentage point to 4.7%, according to the ONS. Athow said there was no sign of dismissal until the government’s wage-supporting holiday program ended at the end of next month.

Brexit is not helping

Labor shortages, however, could hamper the recovery. Some pubs and grocery stores had to close last month due to the number of employees required to self-quarantine after coming into contact with someone who tested positive for Covid-19.

The UK government has since removed this rule for fully vaccinated people, but the impact of the pandemic and Brexit has had the effect of reducing the number of EU citizens to take up jobs in industries such as retail sales. retail, agriculture and logistics.

“While the changes to self-isolation rules are helpful, with many companies facing deeper squeeze in labor supply due to the impact of Covid and Brexit, shortages staff can persistently weigh on economic activity, “economics officer at the British Chambers of Commerce, Suren Thiru said in a statement Tuesday.

Growing concerns about inflation

There are already signs that a labor shortage is putting upward pressure on wages. According to the ONS, the growth in average total salary excluding bonuses was 7.4% in the three months ending in June compared to the same period in 2020.

Even after excluding factors such as the decline in the number of lowest-paying jobs, ONS data suggests annual wage inflation was between 3.5% and 4.9% in June, according to the senior Berenberg economist Kallum Pickering.

“It remains well above the mere 2% average rate from 2009 to 2019,” Pickering wrote in a research note. “With unemployment falling from an already low level and demand for labor greatly exceeding previous records, the risks to the outlook for wage growth appear skewed upward,” he added.

Growing wage pressures come as companies already grapple with higher costs in their supply chains due to raw material shortages and skyrocketing shipping prices.

“Together, these factors point to new inflationary pressures to come as businesses attempt to pass cost increases on to consumers,” Pickering said.

The Bank of England said earlier this month that it expects inflation to exceed its 2% target again in the coming months and will set interest rates to secure the inflation returns to this level.

“We continue to look for the first rate hike in August 2022. But strengthening inflation momentum and strong domestic demand picking up suggest that the risks are moving upwards even sooner, possibly sooner or later. May 2022, “added Pickering.