Published: June 18th, 2021
New labour market data for the United Kingdom indicates that the recovery recorded in Q1 kept going through April and May, with the number of people on an employment payroll growing for the fifth consecutive month, up by 196,000 in May 2021 to 28.4 million.
According to the UK Office for National Statistics (ONS), the boost in employment figures on a three-month rolling basis came in at 114,000 for the three months prior to April.
That was less than the market expected, falling short of estimates that hovered around 150,000. But the majority of the report mainly supported improving sentiment about Britain’s economy.
A note to investors by ING Bank’s forex strategy unit said things are ‘looking up’ for the UK jobs market. The second half of 2021 could be turbulent, however, its analysts said.
Despite a late re-opening of the economy, wage pressures are expected to grow across both the Average Earnings and Bonus indices, which rose 5.5 per cent in April, far ahead of the 4.8 per cent expected by the market.
Wages had been on the rise during the pandemic as workers on lower salaries fell off the employment rolls, a factor expected to reverse when those jobs were re-activated after lockdown.
The volume of job vacancies was 757,000 from March to May, just 27,000 below the level seen before the coronavirus pandemic in January 2020. The ONS figures show that most sectors have bounced back, with advertised roles higher than pre-pandemic levels.
An analysis by online recruitment platform Indeed found that the ending of lockdown restrictions on restaurants and pubs gave the hospitality sector the fillip it needed to restart demand. Hotels, pubs, and restaurants suffered badly under lockdowns, posting a higher number of job losses under COVID-19 than any other industry. Yet in the three months before June, hiring came back with a bang. According to a company press release, 'The number of vacancies grew by an unprecedented 265 per cent.
The upward pressure on wages likely derives from the limited supply of workers to take on the many roles now on offer in Blighty’s rejuvenated economy, with the pandemic also upsetting traditional employment demographics.
For example, there have been many reports in the British national media about the hospitality sector struggling to find people to fill vacancies, with many businesses having to raise their wage offer, as a result, to make jobs more attractive.
Indeed’s study says that the spiking demand from employers is well in excess of the supply of potential hires in some industries, which is creating a broad-based set of hiring across the country. ‘If the pattern persists, we would normally expect the labour market to undergo a tightening, with a concurrent gradual rise in average wages.’
For economists at the Bank of England, growing upside pressure on wages can trigger unhealthy inflationary pressure. If inflation rises too quickly, it could necessitate action from Threadneedle Street and prompt a requirement for raising interest rates.
That's the silver lining under inflation's overall cloudy impact on economic growth. Higher interest rates are usually seen as supportive of the pound for forex traders, especially if the Bank of England moves faster on interest rates than its peers at other central banks.
Economists at Deutsche Bank, however, are more relaxed about the potential adverse effect of wage growth. They say a deeper dive into the ONS data reveals that the short-term impact of rising wages is actually quite minimal.
‘We also saw steady wage growth in April, supported by the clustering of job losses in the second half of last year, most of which were at the low end of the wage spectrum. The ONS figures show that changes in the composition of payrolled employees pushed the headline rate up by a notable 2.4pp in April, they said.
‘On an underlying basis, that suggests real wage growth is probably very soft,’ said a recent note to investors. ‘In fact, the annualised three-month-on-three-month growth rate excluding bonuses is a better guide to the trend. It was very subdued at three per cent in April. ‘Near-term wage growth was soft thanks to the minimal 2.1 per cent increase to the UK’s National Living Wage. It was the smallest increase since 2013. The public sector pay freeze has also kept a lid on excessive or spiking wage growth.’
Looking to the remainder of the year, economists believe the labour market will undergo significant changes as Westminster’s ‘furlough’ job retention scheme winds down before the scheduled September end date.
‘The gradual loss of the furlough scheme will almost certainly thrust more people into job hunting mode and create a healthier pipeline of candidates,’ says Indeed. For now, however, the labour market is demonstrating enough elasticity to meet the demands being placed on it.’
Still, the remaining months of pandemic-blighted 2021 could still be stormy for Britain’s job market. Unemployment could rise with the wind-down of the furlough programme, though many market watchers now believe the jump in job hunters will be a lot less pronounced than it would have been if income support had ended sooner.
ING Economists speaking to Reuters said the furlough scheme might need to be extended beyond September, triggering a renewed employment decline that won’t be visible until the final months of the year.
‘Retail and manufacturing have basically made a full recovery already, and those sectors, won’t just surrender all the productivity gains that they realised under lockdown by simply bringing back all of their former employees’.
ING says it still expects the unemployment rate to rise to about 5.1 per cent in the fourth quarter of 2021, following an expected further modest decline in unemployment in Q3.
