‘Cracks appearing’ in UK labour market

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The latest UK labour market figures show “cracks appearing” for the first time following the UK’s vote to leave the European Union, despite total employment reaching record highs in the three months ended August.

Employment grew at 106,000 over the period, down from 174,000 in the three months to July and 172,000 in the three months to June.

Unemployment rose 10,000 in the three months to August.

Average annual earnings growth was muted at 2.3 per cent, according to the latest figures.

IHS Markit UK and Europe economist Howard Archer says while employment growth is “decent” it is still down from previous months and the report as a whole is mixed.

“There are signs of cracks appearing in the UK labour market, after resilience in the run-up to, and immediate aftermath, of June’s Brexit vote,” Archer says.

IHS Markit predicts unemployment will reach 5 per cent by the end of the year and rise to 5.9 per cent by the end of 2018.

“We suspect that companies will look to clamp down on workers’ pay as they strive to save costs as imported input prices are lifted by the sharply weakened pound and they face a challenging environment.”

Archer says muted earnings growth threatens to weigh down on consumers’ purchasing power alongside inflation, which rose to 1 per cent, according to figures released by the ONS this week. 

The CBI deputy director general Josh Hardie says the “overall picture is resilient”.

However, Hardie warns: “Pay growth is still lacklustre though, emphasising the need for new partnerships between business and the Government that brings a laser-like focus to improving productivity. This is the only route to sustainable, long-term improvements in pay growth.”