The latest ONS figures underline the challenge facing the new government. While there are still a good number of jobs that need to be filled, doing so from the ranks of the almost 10 million inactive working-age people in the UK remains tricky.
Though the labour market has cooled as vacancies have continued to normalise, many roles remain difficult to fill. The market itself remains fairly tight at 1.6 unemployed people per vacancy (below the average of 2.9 over the past two decades). At the same time, there are some 9.4 million working-age potential workers that are inactive nationwide, a near-record high and over 850,000 more than on the eve of the pandemic. Enticing these workers back to the labour market, without unduly raising wages and potentially re-igniting inflation, is currently the challenge facing UK policymakers.
Though wage pressures are gradually easing, they remain solid. Regular pay growth dipped to a near two-year low of 5.4% year-on-year in June, but is still comfortably above the historic average of 3.3%. Above-trend wage growth and stubborn service sector inflation remain a concern for some members of the Bank of England’s Monetary Policy Committee, while a rise in payroll employment in July suggests some underlying resilience in the jobs market (which could support near-term pay growth). The persistence of wage and price pressures could limit the amount of monetary easing the Bank can deliver in the coming months if it is compelled to keep key interest rates high to battle inflation, potentially putting a brake on the economy’s growth.
Raising the effective speed limit at which the economy can sustainably grow, while also keeping inflation low, partially relies on boosting labour force participation — by bringing some of those millions of inactive workers back into the fold. The government has targeted reducing healthcare backlogs, expanding childcare provision and increasing employment support as key areas to help get more workers back from the sidelines and into active labour force participation.
