A slightly cooling labour market?

Date : 13 July 2023

The UK labour market is beginning to show early signs that it is cooling as the employment rate remained flat and unemployment creeps up. There has been a marginal fall in the number of people economically inactive due to long term sickness.

The employment rate in the UK remained flat at 76% in the period from March 2023 to May 2023, according to the latest figures from ONS. The employment rate remains 0.6% below the pre-COVID rate of 76.6%.

Unemployment rose slightly on the quarter to 4.0% for March to May. This is the highest unemployment rate since the end of 2021.

Vacancies have now been falling for a full year since their peak of 1.3 million. This decline has been slow and at 1.03 million, is well above the pre pandemic level of around 800,000.

Slowly falling vacancies and a slight increase in unemployment illustrate a cooling labour market. This could impact wage growth in future months. Average weekly pay (excluding bonuses) this month remained very high at 7.3%.

Significant pay growth is being driven by the shortage in labour supply, in part due to economic inactivity.

The picture on economic inactivity is improving. The number of economically inactive adults fell by 0.4 percentage points on the quarter to 20.8%. This is now only 0.6 percentage points above the pre-pandemic level.

The decline has been largely driven by fewer being classified as being inactive due to needing to look after families or due to long-term sickness.

Since the pandemic, the number of those economically inactive due to sickness has been rising and hit a record high of nearly 2.6 million last month. This month a marginal fall of 30,000 people moving out of economic inactivity due to long term sickness could indicate improvements in this area.

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