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Workers at a Jaguar Land Rover factory.
Workers at a Jaguar Land Rover factory. Photograph: Abel Mitja Varela/Morsa Images/Getty Images
Workers at a Jaguar Land Rover factory. Photograph: Abel Mitja Varela/Morsa Images/Getty Images

Fall in employment rate spells end of UK jobs boom

This article is more than 6 years old

Official figures reveal drop in number of people in work and pay rises lagging behind inflation

Britain’s long jobs boom appears to have come to an end after official figures showed the number of people in work fell by 56,000 in the three months ending in October.

The Office for National Statistics said an upswing that began in 2012, and persisted for a year after the vote to leave the EU, had petered out.

While the solid economic growth in late 2016 meant a total of 325,000 net jobs had been created in the year to October, the latest three months saw a 56,000 drop in employment.

The ONS said the employment rate, which has been at its highest level this year since modern records began in the early 1970s, had slipped by 0.2 percentage points in the latest quarter to 75.1%.

Unemployment also decreased by 26,000 to 1.43 million, but only because of a rise in economic inactivity, a category that counts people who have ceased to look for work. The jobless rate remained at 4.3%, its lowest since 1975.

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What is the ILO unemployment rate?

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The International Labour Organisation (ILO) jobless rate is a measure of unemployment adopted in a number of countries to reflect the state of the labour market. It is expressed in percentage terms, as a proportion of working-age people who are out of work but want a job and are actively looking for one.

The ILO rate is used by the Office for National Statistics to measure unemployment in Britain. The precise definition of people who are counted are those without a job who have been actively seeking work in the past four weeks and are available to start work in the next two weeks. It also includes those who are out of work but have found a job and are waiting to start it in the next two weeks.

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The ONS also reported a slight pick-up in earnings growth, but the 2.3% annual increase in the three months to October was lower than the 2.6% recorded in the same period of 2016 and meant pay was lagging behind inflation for an eighth month.

Earnings growth is being closely monitored by the Bank of England for signs that the reduction in unemployment might lead to the start of a wage-price spiral. Threadneedle Street raised interest rates from 0.25% to 0.5% in November, the first increase in the official cost of borrowing in more than a decade and is expected by the City to raise it again during 2018 unless there is a marked softening of the labour market.

Most City analysts view that prospect as unlikely given the 5,000 increase to 798,000 in the number of job vacancies in the three months to November – evidence that companies are facing a skills’ shortages.

ONS statistician Matt Hughes said: “Employment stayed close to its record high and, while up on a year ago, declined compared with the previous three months. Unemployment also fell, but there was a rise in the number of people who were neither working nor looking for a job. Meanwhile the number of vacancies continues to grow, reaching a new record high.

“There has been a slight pick-up in pay growth in cash terms, which means that although earnings are still growing less than inflation, the gap has narrowed.”

The ONS measures earnings including and excluding bonuses but said real pay was falling whichever method was used once inflation was taken into account. Excluding bonuses real earnings were 0.4% down year on year while including bonuses they dropped by 0.2%.

The ONS said there had been a drop of 35,000 over the past year in the number of employees from the eight eastern European countries that joined the EU in 2004, but an 82,000 increase in the number of workers from Bulgaria and Romania, which joined the EU in 2007.

John Philpott, director of employment consultancy Jobs Economist, said that while the ONS figures suggested the jobs boom of recent years was coming to an end, this was due to a lack of employable people rather than a fall in demand from employers.

“Redundancies are still on the decline and unfilled vacancies have risen to yet another record high; but the rapid growth in labour supply of recent years has seemingly gone into the reverse. The main reasons for this are a sudden surge in student numbers and a fall in the number of citizens of the central and eastern European countries (the A8) that joined the EU in 2004,” Philpott said.

“In principle, this drop in available labour should be good news for unemployed jobseekers. The steady unemployment rate may therefore indicate a lack of employability on the part of the remaining pool of unemployed. Assuming no overall weakening of demand for workers, or renewed growth in supply, the labour market is thus likely to show greater signs of tightening in the coming months which, fingers crossed, should mean somewhat better news on the pay front.”

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