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12 Aug 2015 12:22pm

Mixed views on employment figures

The most recent set of UK unemployment figures are a timely reminder that the UK is still in need of care and attention, according to the British Chambers of Commerce

The figures show that unemployment rose by 25,000 to 1.85m (5.6%) and employment fell by 63,000 to 31.03m in the three months to end June. Youth unemployment was also on the up, rising to 16% in the second quarter compared to 15.9% in the three months to end March.

They also reveal that earnings excluding bonuses was up 2.8% in the second quarter.

“Although the UK jobs market remains robust,” said BCC chief economist David Kern, “these figures are disappointing because for the second month in a row we have seen unemployment rise and employment fall.

“It is also concerning that the youth unemployment rate rose.”

He added that although average earnings growth remained relatively stable and inflationary pressures subdued, British businesses needed a period of stability without any threat of interest rate increases.

The Institute of Directors interpreted the statistics more positively. IoD economic analyst Michael Martins said they indicated that Britain has entered a new stage in the economic recovery, with job security improving and pay continuing to grow above the rate of inflation.

“After years when preserving – and then creating – jobs was the main priority, businesses are now rewarding employees who cut down on hours or accepted pay freezes with extra work and higher wages,” he explained.

“The slight decrease in the overall number of people in work is a natural part of this transition from a fragile recovery to a strong, growing economy. It should not be a cause for alarm.

“Business and consumer confidence is high, meaning more people are switching from part-time to full-time work, fewer people have to work on temporary contracts or to take up second jobs, and the number of job-seekers is also down. Moreover, the overwhelming majority of people who left employment were over 65, showing they now feel confident and secure enough to retire.”

Martins predicted that confidence would stay buoyant for the foreseeable future, with low inflation, strong growth and a tightening labour market on the horizon.

However, he did warn that the UK economy would be facing a major challenge in the not too distant future on the back of continued wage growth and possible interest rate rises. Growth and confidence would need to be translated into productivity gains.

“The signs are encouraging here too, as figures suggest output per hour could be growing at its fastest rate for a number of years,” he said.

ICAEW economic adviser cebr disagreed. Economist Alasdair Cavalla thought the great job recovery might be running out of steam. “With no meaningful rise in workers’ output per hour, but wages back on the rise, it is no longer a no-brainer for companies to expand workforces.

“This comes on top of worrying signals from a global economy which has become over-reliant on Chinese growth and low interest rates.”

Cavalla also said that the jobs statistics made it much more likely that an interest rate rise would come later rather than sooner, since the labour market is not yet in a position where it is strong enough to withstand a hike.

Cebr continues to predict that the monetary policy committee will wait until Q1 next year before agreeing to an interest rate rise.

Julia Irvine

 

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