UK labour market cooling

Date : 26 October 2023

The UK labour market tightness is continuing to ease with a slight increase in unemployment compared with the previous quarter. However, the ONS has announced that it does not have confidence in parts of the data in the Labour Force Survey, raising concerns for policy makers.

The ONS has released experimental estimated data on the UK employment market for the period June to August, due to increased uncertainty around the Labour Force Survey.

The Labour Force Survey is a crucial tool that provides policy makers and businesses with an accurate understanding of the UK’s labour market, enabling the best strategic decisions to be made.

Experts have indicated there is a significant divergence of nearly 1 million people between the employment levels reported on the Labour Force Survey and that reported through PAYE data.

Initial estimates from the ONS are indicating that changes to the labour market remain muted. Estimates show that UK employment fell by 0.3 percentage points to 75.7% in the period June to August, when compared with the previous quarterly period (March to May 2023).

The UK unemployment rate increased slightly by 0.2 percentage points to 4.3% in the period June to August, when compared with the previous quarterly period (March to May 2023). This suggests that the labour market is continuing to cool slowly.

This was reflected in recent annual pay growth rates, which are currently slowly falling back from historic highs.

Initial estimates indicate that economic inactivity remains a stubborn problem, increasing slightly by 0.1 percentage point to 20.9% in the period June to August, compared with the previous quarterly period (March to May 2023).

The latest experimental data does not provide a breakdown in the reasons why individuals are becoming economically inactive. Previous releases have shown that since the pandemic, there has been significant growth in the number of people economically inactive due to long term sickness.

IGD Viewpoint

The estimates released indicate that interest rate rises over recent months appear to be having an impact. Economic growth is flat, inflation is falling and unemployment nudging up. It will be a challenge in this interest rate environment to achieve economic growth.

Register now for our next Viewpoint webinar on 16 November where we will discuss the economic outlook, changing consumer sentiment and the policy landscape ahead of 2024.

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