• ONS figures published this morning show unemployment fell to 4.3% in July to September
• Job vacancies rose to a fresh record high of 1,172,000 in August to October
• Average earnings (excluding bonuses) grew by 4.9% over the year to July to September
• The figures solidify the case for an interest rate rise
Laith Khalaf, head of investment analysis, AJ Bell:
“As we approach Christmas, it’s extremely positive news that unemployment is so low. It’s less good news for employers that vacancies remain at record highs, which shows that many businesses are still struggling to attract staff as we approach the busy festive period. The rate of growth in vacancies has moderated slightly, but tens of thousands more jobs are being posted than filled, which suggests the economy is trying to move into top gear without enough fuel in the tank right now. There are currently 3.9 vacancies for each 100 jobs, a record high for this ratio.
“The big economic question is whether the jobs squeeze is going to worsen inflationary pressures, as employers try to outbid each other for workers. With so many vacancies on the shelf, there’s probably never been a better time to be a job-seeker, but this doesn’t seem to be feeding through into better pay and conditions. Wage growth is actually falling, though this figure has been heavily distorted by the furlough scheme, so we shouldn’t rely on it too much right now. Regular earnings have grown by 4.9% over the last year, but stripping out the effects of the pandemic, the ONS reckons underlying earnings growth could actually be as low as 3.4%.
“The ONS reports that a large part of the increase in employment seen in the last three months were jobs on zero hour contracts, which doesn’t suggest employers are exactly bending over backwards to provide extremely attractive terms to prospective employees. This corroborates the case that there hasn’t as yet been a wholesale change in business behaviour in response to staff shortages, which would help stoke inflation. It’s still early days in the post-pandemic world however, and most of the available data is not showing the fate of the million or so workers still on furlough when the scheme closed at the end of September. Tentative signs from the ONS business survey are positive and suggest few redundancies amongst those still on furlough at the bitter end. However, it’s possible that some are still on notice periods, and as we all know, many moribund businesses keep trading through Christmas for one last hurrah before shutting up shop for good in the new year.
“These latest job figures will be digested by the powers that be on Threadneedle Street and will solidify the case for an interest rate rise. Given the shakiness of some of the current data, the Bank of England will probably wait until February to make its move though. By then it will be clear if we have got through winter without fresh social restrictions too, allowing the Bank to move onwards and upwards with more confidence.”
