British workers re-entered the labor market at the fastest pace before the pandemic as the cost of living crisis drew more people into jobs.
The number of people of working age outside the jobs market declined by 144,000 in the quarter through May, the Office for National Statistics said on Tuesday. Employment grew by 296,000, faster than economists expected at 170,000.
The number of inactive people is 378,000 more in early 2020 than before the coronavirus hit.
Figures suggest the old job shortage may begin to ease as workers fill up with vacancies that pop up when the lockdown to control the virus ends. Continuing that trend could ease some of the concerns the Bank of England has about the inflation-driven job market consolidation.
“The labor market remains extremely tight,” said Kitty Asher, chief economist at the Institute of Directors. “Having said that, there is a suggestion that things may have started to settle.”
For now, the overall labor market continues to ease tensions, which companies say are starting to weigh down their output. Unemployment is at its lowest level since 1974, and vacancies remain almost at record levels.
Wage growth excluding bonuses accelerated, but at a much slower rate than inflation. Adjusted for prices, real wages fell 2.8 pc, more than at any point since records began in 2001.
With inflation certainly reaching double digits, workers are using their bargaining power to equalize wage increases. Public sector employees are threatening strike action if their settlement is low. The BoE is concerned that the wage-price spiral could ensure that inflation is kept from falling back as predicted.
“Britain workers are facing the worst pay in modern history,” said Frances O’Grady, general secretary of the Trade Union Congress. “We can’t go on like this.”
Unemployment stood at 3.8 per cent in the three months to May. There are now more vacancies in the economy than people looking for work – about 1.3 million. Private sector companies added another 31,000 payrolls in June, at half the pace economists had expected. Redundancy set a new record low.
The decision on public sector wage hike for about 25 lakh public sector employees may come as early as today. Doctors, nurses, teachers and police say they are ready to strike if asked for a real cut.
There are reports that the Treasury is willing to increase wages by 5 percent, up from the 3 percent suggested as a guideline. Private sector wage growth averaged 7.2% over the past three months, though some of it is given through one-time bonuses. In contrast, public sector wages grew at a much slower rate of 1.5 per cent.
The pressure on living standards is expected to weigh on the economy and increase unemployment later this year.
However, outgoing policymaker Michael Saunders warned on Monday that borrowing costs are likely to rise above 2% in the next year, making the BoE unlikely to prevent further rate hikes.
Investors are more flummoxed, with money market pricing up an aggressive half-point increase in August to 1.75% and rates at 3 pc by year’s end.
“Today’s figures underscore how strong our job market is, while providing incentives in uncertain economic times,” said Chancellor of the Exchequer Nadim Jahvi. “I am fully aware that rising prices are affecting how far people’s hard-earned money goes, so we are providing support to families through cash grants and tax cuts.”