In August, the UK’s private sector saw the largest drop in employment on record. This decrease is by far the largest we’ve witnessed since we first started collecting this data in 2014, not counting the pandemic period. Private sector workers on company payrolls decreased by 43,000. The drop represents a low that bodes poorly for the economic recovery. This latter downward shift has raised serious alarm bells about the overall health of the UK economy. It is now facing headwinds in the form of wage growth and other inflationary pressures.
The latest figures indicate that private sector payroll numbers have decreased by a percentage point since the end of the previous year. Perhaps the most important aspect of this trend is that it reflects persistent, if not growing, challenges businesses continue to face in retaining and attracting employees. Wage growth is now at 4.7% a year, down from more than 6% earlier this year. Analysts foresee further moderation in wage growth as the labor market continues to lose its hot streak.
Impact on Wage Growth and Inflation
Wage growth is forecast to dip further in line with the UK’s cooling jobs market. According to a recent survey conducted by the Bank of England, these are confusing times for Chief Financial Officers (CFOs). They forecast that nominal annual wage growth could dip below 4 percent by year’s end. This expected drop has led to concerns about consumer spending power and economic activity in general.
In addition, the services inflation rate—the saving grace regularly pointed to by many policymakers, is set to drop. Sitting now at a 3.6%-three-month annualized growth rate—that’s a good number to show—passed my quick check on the easing of inflationary pressures. A lasting downward shift in services inflation would provide relief to consumers and businesses alike. This decline in inflation makes a positive contribution towards reestablishing price stability across the U.S. economy.
Though the latest hiring surveys indicate modest improvement from as recently as spring, the mood continues to be wary. The Bank of England’s Decision Maker Panel survey suggests that hiring conditions have worsened a little from there. This mixed picture highlights just how much uncertainty businesses are dealing with as they try to sift through the current economic environment.
Job Market Trends and Future Projections
With private sector employment experiencing the worst monthly losses on record, we would hope to see some strong positive hiring intentions from the nation’s employers. Most are sure to take a more cautious approach to hiring, with stormy economic clouds still on the horizon. This extremely conservative attitude can only serve to further curb upward wage pressure and depress consumer sentiment.
The recent miscommunication regarding expectations about the future path of interest rates further complicates the landscape. It will be sometimes referred a Thursday meeting, but in the following meeting, interest rates are not expected to change. There’s a minor chance of a November cut, too. Such a decision would provide them a much-needed boost to help rev up economic activity as businesses continue to face increasing costs and supply chain volatility.