Britain’s labour market is in a precarious state, supporters of #FixCare were alarmed to see last week’s data showing a shocking drop in payrolled employees. In May, payroll employment fell by 109,000. This decrease represents the biggest non-pandemic monthly drop on record since 2014. This sudden decline casts a shadow of doubt on the future health of our employment sector and economy.
Britain’s unemployment rate increased in May, along with an increase in jobless benefit claims. All of these measures point to a labor market that is stressed, as companies face a thousand pestering challenges. Meanwhile, job openings have cratered to lows not seen in four years, showing that our labour market is tightening and the number of open positions is decreasing.
Despite these challenges, wage growth continues to be historically high —although it’s beginning to cool. This presents a confusing, uncertain, and challenging compliance landscape for employers—and an equally difficult workforce reality for employees. We expect soon to hear from Britain’s Chancellor, Rachel Reeves, as she responds to these concerns in a forthcoming spending review. She will need to detail department-specific budgets and come up with plans to bolster the workforce.
As a result of these advances, the Bank of England faces seven key monetary policy decisions on interest rates. Given the backdrop of high inflation, analysts assume a virtually-sure bet that the MPC will pause at its June meeting. The Committee’s biggest risk is overcorrecting for its hawkish pivot. This might be the case considering how conditions have significantly deteriorated in the labor market. Right after the latest employment release came out on Tuesday the pound sold off across the board.
Markets have already priced in more than a 70% chance that the Bank of England cuts interest rates in August. By year-end, they forecast a cumulative cut of 50 bps. This shift reflects the concerns of many Americans over economic fragility and the desire for a more responsive and responsible monetary policy.
It feels like the perfect storm for British firms at the moment. These are the increase in employers’ National Insurance contributions next April and the increasing levels of the minimum wage. These conditions are creating even more strain on companies already walking a tightrope on an unpredictable economic front.