By Geoffrey Smith
Investing.com -- The U.K. economy is running out of workers, even as it slows dramatically under the weight of the ongoing cost-of-living crisis.
Employment growth slowed sharply in the three months through July, as the labor pool dried out amid the summer's heatwaves and the after-effects of the pandemic, the Office for National Statistics said on Tuesday.
Only 40,000 net jobs were created in the period, down from 160,000 in the three months through June, and well below analysts' forecasts for 128,000. The number of vacancies also fell the most in two years, albeit remaining at a historically high level of 1.266 million. Employment nonetheless hit another all-time high of 29.7 million.
Even so, the jobless rate fell to 3.6% of the population, its lowest in nearly 50 years, because of the number of people leaving the workforce altogether. The economic inactivity rate rose by 0.4% to 21.7%, largely driven by those aged 16 to 24 years and those aged 50 to 64 years. For the elder bracket, the increase was due largely to long-term sickness, the ONS said.
"Anecdotally this is not all about Long COVID, but also pre-existing conditions whose treatment was interupted during the pandemic," said Simon French, Chief Economist with Panmure Gordon, via Twitter. He noted that inactivity is now at a seven-year high.
The number of those claiming unemployment benefits also rose last month, the ONS said, by 6,300. That was also considerably worse than July's drop of 14,500 and worse than expectations for another drop of 13,200.
Meanwhile, the lack of spare labor allowed those in work to continue to press for higher wages. Average earnings growth excluding bonuses accelerated to 5.2% from 4.7%. Including bonuses, average earnings in the year through July were up 5.5%, up from 5.2% through June.
As such, wages are showing little sign of responding to the Bank of England's monetary policy tightening, and too slowly to keep with an annual inflation rate that is still rising. Inflation topped 10% in July for the first time in 40 years, and is expected to rise further in the near term, even though the new government of Prime Minister Liz Truss has canceled a big scheduled increase in regulated household energy bills. The price of a supermarket shopping basket rose 12.4% in the year through August, according to figures released on Tuesday by research firm Kantar Worldpanel.
The pound responded positively to the news, as the data added to expectations that the Bank of England will continue to raise interest rates aggressively to rein in inflation. By 03:10 ET (07:10 GMT), it was up 0.3% at $1.1710, near a two-week high. It also rose 0.1% against the euro to 1.1555.