Faulty forecasts, the UK’s contracting job market, and high inflation all contribute. On payrolls, we saw a huge reduction in the estimated count of workers on payrolls in that first quarter of the year. Looking at the data already released, that would suggest a net loss of 53,000 workers over the first three months of 2023. That trend continued into April, with preliminary estimates showing the loss of another 33,000 payroll fungibilities.
The pandemic’s effects on employment have been drastic and continues to increase the unemployment rate. It went as high as 4.5% for the Jan to Mar quarter. This figure, of course, is an increase from the prior 4.4% rate. Taken together, the data paints a deeply disturbing picture of today’s labor market. Now more than ever, businesses are forced to eliminate positions as a direct reaction to these external pressures.
Still, even with these headwinds, underlying earnings proved stronger than expected, expanding at a 5.6% clip in the first quarter. This figure excludes bonuses of any kind. Even with faltering employment levels, base pay seems to keep climbing.
Ruth Gregory, an economist, commented on the situation, stating, “The further softening in employment in April suggests businesses continued to respond to the rise in business taxes and the minimum wage by reducing headcount.” We know that economic policies can play a huge role in determining whether we’re adding or subtracting jobs. Every day, businesses find it more difficult to maintain their businesses’ workforce as costs soar.
Gregory noted that “Sticky wage growth may mean the Bank remains uneasy about inflationary pressures in the near term.” This observation raises concerns about how persistent wage increases could affect inflation and monetary policy decisions in the coming months.
As the labour market undergoes persistent change, the Bank of England will have to weigh these complications in its decisions. Gregory emphasized that “As a result, the ‘gradual’ interest rate cutting path will remain the balancing act.” Retrospective Most individuals understand that when our central bank, the Fed, wants to invigorate the economy, they lower interest rates. The Fed needs to be on guard for inflationary threats that may result from accelerating wages.