Home » UK jobs market cooling as unemployment rises, but wages still strong – business live

UK jobs market cooling as unemployment rises, but wages still strong – business live

Introduction: UK unemployment rate rises, but wages still strong

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s unemployment rate has risen as companies cut back on hiring, and more people drop out of the labour market, often due to ill health.

The latest UK labour market statistics, just released this morning, show that the jobless rate has risen to 4.3% in the first quarter of this year, up from 4.2% a month ago and 3.8% in the previous quarter.

That’s the highest unemployment rate in nearly a year, since March-May 2023.

Another 166,000 people become unemployed in the quarter, taking the total out of work and looking for a job to 1.486m.

The number of people in employment dropped by 178,000 – another signal that the labour market is cooling – taking the total in work to just below 33 million.

Vacancies fell too: down by 26,000 in the three months to April, to 898,000.

In another worrying sign, the UK’s economic inactivity rate jumped to 22.1% in January to March, up from 21.9% in the final three months of 2023. That highlights the rise in people leaving the workforce – perhaps for illness, or due to caring responsibilities.

We’ve published the latest UK labour market figures.

Headline indicators for the UK labour market for January to March 2024 show:

· employment was 74.5%
· unemployment was 4.3%
· economic inactivity was 22.1%

Read Labour market overview ➡️ https://t.co/2O7qcvRfkz pic.twitter.com/lgM8rmC07j

— Office for National Statistics (ONS) (@ONS) May 14, 2024

But pay growth remained strong – which may disappoint the Bank of England as it looks for signs that inflationary pressures are easing.

Regular earnings (excluding bonuses) rose by 6.0% in the last year, while total pay (including bonuses) rose 5.7% – with both readings unchanged compared with last month.

This means that real wages continue to grow, with earnings rising faster than CPI inflation.

The ONS says:

Using CPI real earnings, in January to March 2024, total pay was 2.1%. Growth was last higher in July to September 2021, when it was 3.0%.

Regular pay was 2.4%; growth was last higher in June to August 2021, when it was 3.4%.

Also coming up today

Later this morning we’ll hear from BoE chief economist Huw Pill, one of the monetary policy committee members who voted to leave interest rates on hold last week.

UK farmers are heading to Downing Street to meet PM Rishi Sunak for the second Farm to Fork summit, to discuss the challenges in the farming industry.

Global investors are bracing for the latest US Producer Price Index (PPI) data, which will show how quickly America’s manufacturers and services companies raised their prices last month.

The PPI report could reinforce, or ease, concerns that US inflation is looking sticks.

Stephen Innes, managing partner at SPI Asset Management, explains:

If this month’s PPI data doesn’t show a decline, there is potential for rates to drift higher, which could lead to a slide in stocks.

And in Miami, mining executives have gathered for the Bank of America Global Metals, Mining & Steel Conference 2024. That includes the CEOs of BHP Group and Anglo American, who are locked in a takeaover tussle after Anglo rejected BHP’s second takeover bid.

The agenda

  • 7am BST: UK labour market report

  • 8.30am BST: Bank of England chief economist Huw Pill speaks at the Institute of Chartered Accountants in England and Wales Regions economic summit

  • 9.30am BST: UK productivity estimates for Q1 2024

  • 10am BST: ZEW institute index of eurozone economic sentiment

  • 11am BST: NFIB index of small business optimism

  • 1.30pm BST: US PPI index of producer price inflation

  • 3pm BST: Fed chair Jerome Powell speaks at the Foreign Bankers’ Association AGM in Amsterdam

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Key events

New version of Chat-GPT tells bedtime stories, translates and flirts

OpenAI has shaken up the artificial intelligence world by releasing their latest AI chatbot,

OpenAI say that GPT-4o – the “o” stands for “omni” – is a step towards much more natural human-computer interaction.

It brings the faster, more accurate GPT-4 AI model to free users (previously you had to pay), and can accept any combination of text, audio, and images as input.

And demonstrations show just how powerful the new chatbot is.

In one demonstration, GPT-4o created a bedtime story about love and robots, telling it in a variety of different emotional and vocal inflections.

Another demonstrations showed it translating in real time between English and Spanish – an example of the way that AI could shake up the employment sector…..

… it can do English <-> Italian translations too!

GPT-4o has also been designed to sound chatty and sometimes even flirtatious, as the BBC’s technology editor, Zoe Kleinman, explains here:

Using a warm American female voice, it greeted its prompters by asking them how they were doing. When paid a compliment, it responded: “Stop it, you’re making me blush!”.

It wasn’t perfect – at one point it mistook the smiling man for a wooden surface, and it started to solve an equation that it hadn’t yet been shown. This unintentionally demonstrated that there’s still some way to go before the glitches and hallucinations which make chatbots unreliable and potentially unsafe, can be ironed out.

OpenAI throws down gauntlet to rivals with ChatGPT-4o announcement. A tough act for Google IO to follow in less than 24 hours time…. https://t.co/Y0McQc5SWe

— Zoe Kleinman (@zsk) May 13, 2024

Labour market hit by economic slowdown

The UK’s economic slowdown last year has caused Britain’s jobs recovery to falter, explains the Resolution Foundation this morning.

They point out that the post-pandemic workforce has shrunk by the equivalent of one million workers, compared to before Covid-19.

But the slowdown hasn’t yet fed through into pay packets, with real wages now growing at their fastest in rate in over two years, Resolution points out.

Nye Cominetti, principal economist at the Resolution Foundation, says:

“Britain’s jobs recovery continues to falter, with the workforce shrinking by the equivalent of one million workers since pre-pandemic times. This worrying employment fall shows the damage that an economic slowdown can cause.

“The news for those in work is more positive however, with real wages growing almost as much over the past 12 months as they did in the 16 years prior to this.

“The big question is whether the UK’s recent economic recovery will boost employment and raise output per worker, which will be needed to sustain its mini pay recovery.”

Jonathan Portes, professor of economics at King’s College London, has analysed today’s economic inactivity data:

Interesting to chart inactivity rates by country of birth; rise among UK-born partly offset by sharp fall amongst non-UK born.

Suggests very high % of new migrants are working.. pic.twitter.com/BeBikVvbv6

— Jonathan Portes (@jdportes) May 14, 2024

Kathleen Brooks, research director at XTB, also believes today’s jobs data could support a Bank of England rate cut in June.

Brooks explains:

The uptick in the unemployment rate is garnering a lot of attention this morning. It rose to 4.3%, the highest level since July last year, and above the average unemployment rate of the last 5 years, which is 4.2%.

However, this is still a very low level, and for the last three years, the unemployment rate has been in an approximate range between 3.5% – 4.5%.

This supports the BOE view that the UK’s economy is 1, resilient against higher interest rates, and 2, that disinflation is occurring while there is still virtually full employment. Thus, the rise in the unemployment rate to the top of the medium term range, is not a cause for concern, but it could support a rate cut from the BOE next month.

June interest rate cut a coin toss

The money markets are suggesting there is an evens chance that the Bank of England starts cutting interest rates in June.

There is currently a 50.2% chance of a cut next month, LSEG data shows, and a 49.8% chance that the BoE leaves interest rates on hold….

James Smith, developed markets economist at ING, says the cooling UK jobs market bolsters the chances of near-term rate cut. He agrees that “it’s looking pretty 50-50 right now” between June and August for the first rate cut.

Today’s jobs report shows there are now almost 9.4 million people who are economically inactive (neither in work, nor looking for a job).

Many of these people are keen to work, though, points out Stephen Evans, chief executive at Learning and Work Institute:

“The labour market continues to ease with employment and vacancies down. The number of people economically inactive due to long-term sickness is up 700,000 since the pandemic.

But 1.7 million people who are economically inactive say they would like a job. The answer isn’t further tightening benefit eligibility or focusing on a so-called ‘sick note culture’; it’s widening and improving help to find work.”

Charts: The latest UK employment indicators

Here are the key charts from today’s labour market report, showing the state of the UK jobs market:

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Wages rose faster in the public sector than the private sector in the first quarter of the year.

Today’s jobs report shows that regular earnings (ex bonuses) in the public sector grew by 6.3% in the January-March quarter

But in the private sector, basic pay grew by 5.9% – the lowest since April-June last year.

Sanjay Raja, chief UK economist at Deutsche Bank, says:

The UK labour market continues to show signs of cooling – which should spell good news for the MPC. Private sector regular pay growth – while still elevated – came down a little more than the Bank of England was expecting at 5.9% (3m/YoY).

While we expect wage growth to remain sticky through the April period given the large 10% hike to the National Living Wage, this will give the MPC some confidence that data outturns are broadly in line with their own expectations.

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Digging into today’s pay data, we can see that earnings rose fastest in manufacturing, and finance and business services – with regular pay (ex bonuses) up 6.8% per year in both sectors in January-March.

The construction sector saw the smallest annual regular pay growth across sectors, at 2.6% (activity fell in this sector in the last quarter).

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