UK Labor Market Data Reveals Sectoral Shifts

• Rising unemployment and economic inactivity clashed with strong wage growth.
  
• The government faces the important task of addressing labor supply issues to prevent significant economic costs.

Unemployment Hits 4.4% Highest Since September 2021

The UK labor market data from June reveals a mix of rising unemployment, solid wage growth, and notable economic inactivity. Despite an increase, the unemployment rate remains historically low at 4.4% for the February to April 2024 quarter, the highest since September 2021, reflecting a year-long trend of gradually rising unemployment rates. In contrast, the employment rate has seen a decline, falling to 74.3%, which is below the figures from the previous year, largely attributed to a reduction of 36,000 payrolled employees between March and April 2024.

Wage Growth Surges: Public Sector Up 6.4%

Wage growth continues to show strength, with public sector wages increasing by 6.4% and private sector wages by 5.8%. Regular earnings, excluding bonuses, have risen by 6.0% annually, while total earnings, including bonuses, have seen a 5.9% increase. When adjusted for inflation, real earnings have grown by 2.3%, indicating that wage increases are outpacing inflation, which provides some relief in real terms to workers.

Blue-Collar Expands, Retail Drops

However, the job market faces pressures as the number of job vacancies has decreased by 9,000 to 904,000, continuing a downward trend influenced by weaker demand and delays in hiring decisions by firms. While sectors like engineering and blue-collar work have experienced growth, others such as retail and clerical work have seen significant drops in demand for permanent workers. Nevertheless, an increase in the availability of staff may help mitigate some of these challenges.

During these changes, the newly elected government is tasked with addressing labor supply issues to prevent a potential annual cost of £39 billion to the economy due to labor and skills shortages. With the Bank of England projecting that inflation will approach its 2% target soon, there is an expectation that this could positively influence future wage growth and employment trends.