The UK labour market remained tight at the end of last year despite a faltering economy. The unemployment rate fell to 3.8% in the three months to December, below its pre-pandemic level, while the employment rate rose slightly to 75.0%, according to estimates from the Office of National Statistics (ONS)’s reinstated Labour Force Survey.
Inactivity was stable at 21.9%, well above the 20.5% seen on the eve of the pandemic. The number of people inactive due to long-term sickness stood at a near-record high of 2.8 million. However, the ONS cautioned that the accuracy of its headline labour market figures remains uncertain amid ongoing methodological work to improve the reliability of the survey estimates.
Still, the figures underline why policymakers at the Bank of England remain concerned that labour supply constraints could mean stickier wage growth — and, potentially, persistently high inflation. Vacancies, while still 13% above pre-pandemic levels, have normalised from post-pandemic highs as labour demand has cooled. But regular pay is growing at an annual rate of 6.2%, well above the Bank’s comfort zone. The speed at which wage growth slows (or doesn’t) remains key to the timing of any potential future interest rate cuts.
