The UK jobless rate declined to the lowest since 1974 in the first quarter amid record job vacancies that reflect the tightening labor market conditions despite the slowdown in the economy, data published by the Office for National Statistics showed on Tuesday.
The unemployment rate declined 0.3 percentage points sequentially to 3.7 percent in three months to March, which was the lowest since December 1974. Moreover, the rate remained below the forecast of 3.8 percent.
For the first time since records began, there are fewer unemployed people than job vacancies.
Data showed that the number of job vacancies rose to a new record of 1,295,000 in three months to April. However, the rate of growth in vacancies continued to slow down.
Record jobs vacancies highlight the perilous hiring crunch facing businesses, British Chambers of Commerce, Head of Economics, Suren Thiru, said.
With rising economic inactivity confirming that the UK workforce is shrinking, labour shortages are likely to persistently drag on UK growth by stifling firms’ ability to operate at full capacity, Thiru added.
According to ONS, employment grew 121,000 from March to a record 29.5 million in April.
The employment rate increased 0.1 percentage points on the quarter to 75.7 percent in the first quarter.
In the first quarter, average earnings including bonuses grew 7.0 percent from the last year, well above the expected rate of 5.4 percent. However, excluding bonus, earnings were up 4.2 percent, slower than the 4.1 percent expected growth.
“Our view that the labour market will remain tight and wage growth will accelerate further even as the economy flatlines or contracts in the next few quarters explains why we think the Bank will have to raise interest rates to 3.00% to contain this domestic inflationary pressure,” Paul Dales, an economist at Capital Economics, said.
Although the Bank of England has forecast higher unemployment, much obviously depends on whether we see a more severe economic downturn, James Smith, an ING economist observed. Barring that, the potential for ongoing worker shortages probably means there is a strong incentive for firms to avoid layoffs, the economist noted.
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