UK workers are returning to the labor market at the fastest pace since pre-Covid

British workers returned to the labor market at the fastest pace since before the pandemic as the cost-of-living crisis lured more people into jobs.

The number of people of working age outside the labor market fell by 144,000 in the quarter to May, the Office for National Statistics said on Tuesday. Employment rose by 296,000, more than the pace of 170,000 economists had been expecting.

The number of inactive people remains 378,000 higher than before the outbreak of the coronavirus in early 2020.

The figures suggest chronic job shortages may be beginning to ease as workers fill a plethora of jobs that emerged after lockdowns ended to fight the virus. A continuation of this trend could allay some of the Bank of England’s concerns about tight labor markets fueling inflation.

“The labor market remains extremely tight,” said Kitty Ussher, chief economist at the Institute of Directors. “Nonetheless, there is an indication that things may be beginning to calm down.”

For now, the job market overall continued to underscore strains that companies say are beginning to weigh on their production. Unemployment was at its lowest since 1974 and job vacancies remained at record levels.

Non-bonus wage growth increased, but at a rate much slower than inflation. Real wages fell 2.8 percent on a price-adjusted basis, the more than at any time since records began in 2001.

With inflation heading into the double digits, workers are using their bargaining power to secure commensurate wage increases. Public sector workers are threatening to go on strike if their severance pay is insufficient. The BOE is concerned that a wage-price spiral could emerge, preventing inflation from falling back as forecast.

“British workers are suffering from the worst wage squeeze in modern history,” said Frances O’Grady, general secretary of the Trades Union Congress. “We can’t go on like this.”

Unemployment remained at 3.8 percent in the three months to May. The economy now has more vacancies – around 1.3 million – than people looking for work. Private sector companies hired another 31,000 jobs in June, half the rate economists had been expecting. Layoffs hit a new record low.

A decision on salary increases in the public sector could already be made today for around 2.5 million public sector employees. Doctors, nurses, teachers and police officers say they are ready to strike if asked to make real cuts.

There are reports that the Treasury Department is willing to increase salaries by 5 percent, more than the 3 percent it had proposed as a guideline. Private sector wage growth has averaged 7.2% over the past three months, although some of this has come from one-off bonuses. In contrast, public sector wages grew much more slowly, at 1.5 percent.

Pressure on living standards is expected to weigh on the economy later this year and push up unemployment.

However, that is unlikely to stop the BOE from making further rate hikes as outgoing policymaker Michael Saunders warned on Monday that borrowing costs are likely to rise above 2% next year.

Investors are becoming more hawkish as money markets are pricing in an aggressive half-point hike in August to 1.75% and rates of 3% by the end of the year.

“Today’s figures underline how strong our labor market still is and give courage in economically uncertain times,” said Finance Minister Nadhim Zahawi. “I’m well aware that rising prices are affecting people’s hard-earned incomes, so we’re helping households through cash grants and tax cuts.” UK workers are returning to the labor market at the fastest pace since pre-Covid

Fry Electronics Team

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