British workers re-entered the job market at the fastest pace since before the pandemic, as the cost-of-living crisis brought more people back to work.
The count of working-age people outside the labor market fell by 144,000 in the quarter to May, the Office for National Statistics said on Tuesday. Employment increased by 296,000, more than the 170,000 pace economists had expected.
The number of inactive people is still 378,000 higher than it was before the coronavirus hit in early 2020.
The figures suggest that chronic job shortages could be starting to ease as workers fill a slew of vacancies that arose as lockdowns to control the virus ended. Continuing that trend could ease some of the Bank of England’s concerns about a tight labor market driving up inflation.
“The labor market remains extremely tight,” said Kitty Ussher, chief economist at the Institute of Directors. “Having said that, there is a suggestion that things could be starting to settle down.”
For now, the broader labor market continued to underscore tensions that companies say are beginning to affect their output. Unemployment hovered near the lowest level since 1974 and vacancies hovered at a near-record level.
Wage growth, excluding bonuses, increased, but at a much slower pace than inflation. Adjusted for prices, real wages fell 2.8%, more than at any time since records began in 2001.
With inflation on track to hit double digits, workers are using their bargaining power to seek equivalent wage increases. Public sector employees are threatening to strike if their agreements fall short. The BOE is concerned that a spiral of prices and wages will occur that prevents inflation from receding as expected.
“Workers in the UK are suffering the worst pay cut in modern history,” said Frances O’Grady, general secretary of the Trades Union Congress. “We can’t go on like this.”
Unemployment stood at 3.8pc in the three months to May. The economy now has more vacancies (about 1.3 million) than people looking for work. Private-sector businesses added another 31,000 payrolls in June, half the pace economists had expected. Layoffs hit a new all-time low.
A decision on public sector wage increases for around 2.5 million public sector workers could come today. Doctors, nurses, teachers and police officers say they are prepared to strike if asked to accept cuts in real terms.
There are reports that the Treasury is willing to increase wages by 5%, more than the 3% it had suggested as a guideline. Private-sector wage growth has averaged 7.2% in the last three months, though some of that has been provided through one-time bonuses. By contrast, public sector wages grew much more slowly at 1.5pc.
Lower living standards are expected to weigh on the economy later this year and increase unemployment.
However, that is unlikely to stop the BOE from raising rates further, as outgoing policymaker Michael Saunders warned on Monday that borrowing costs are likely to rise above 2% in the next year.
Investors are more aggressive, with money market prices aggressively rising half a point in August to 1.75% and rates at 3% by the end of the year.
“Today’s figures underscore how strong our labor market remains, providing encouragement in uncertain economic times,” said Finance Minister Nadhim Zahawi. “I am well aware that rising prices are affecting the reach of people’s hard-earned income, which is why we are providing relief to households through cash grants and tax cuts.”