UK unemployment rises to 4.3% as jobs market cools, but real wages are growing again – business live | Business

The Institute of Directors are urging the Bank of England to stop raising interest rates, saying earlier increases have hurt the economy.

Kitty Ussher, Chief Economist at the IoD, says today’s jobs data shows a weakening labour market, so the Bank should keep interest rates on hold when it next meets on 21 September.

“Although wage inflation still feels high, the headline rate is now being driven by the recent public sector pay settlements which will not lead to cost pass-through on the part of their employers. Private sector pay wage pressure, although also high, has grown at a lower rate in recent months and is likely to fall further as the labour market loosens and the headline rate of inflation comes down.

“Our own data shows that the large interest rate rise in June led to a worsening in the way that business leaders considered the outlook for the economy. The Bank of England should now give its medicine time to work. The holy grail of a soft landing where we bring inflation down without causing a recession is still possible; the risk now is that too much tightening will unleash a series of negative events that causes the Bank to undershoot its inflation target further down the line.”

The financial markets, though, expect the Bank to raise interest rates again at this month’s meeting, from 5.25% to 5.5%.

Yesterday, Catherine Mann, one of the nine members of the Bank’s rate-setting monetary policy committee, argued it was better to raise interest rates too far rather than take the risk of allowing inflation to become embedded.

Today’s figure, showing that average earnings grew by 8.5% in the year to May to July, is “particularly important”. It is very likely to be used in determining how much the state pension increases by next April for the UK’s 12 million pensioners.

So explains Jonathan Cribb, associate director at the Institute for Fiscal Studies.

‘Under the triple lock, the state pension increases every April in line with the highest of average earnings growth in the year from May to July of the previous year, CPI inflation in September of the previous year, and 2.5%. If today’s figure is indeed the highest of those three, it means that a full basic state pension is set to rise from its current £156.20 per week to £169.50, while a full new state pension – which those who reached state pension age since April 2016 can receive – would rise from £203.85 per week to £221.20.

‘Since its introduction in 2010, the triple lock, together with the introduction of the new state pension, has significantly increased the generosity of the state pension relative to earnings. But this comes at a cost to public finances – the triple lock has added £11 billion to spending on the state pension in 2023–24 relative to price or earnings indexation. Compared with the OBR’s forecast from just six months ago, today’s figures mean spending on the state pension is set to increase by another £2 billion in 2024–25.

‘These increasing public finance pressures caused by the triple lock, especially in periods of macroeconomic volatility as we have experienced in recent years, risk the sustainability of the state pension system, meaning heightened uncertainty for individuals planning their retirement finances.’

[There is one proviso – today’s wage data could be revised in a month’s time, and it’s that number which will be used].

The long-term future of the triple lock is unclear, though. On Sunday, Rishi Sunak refused to commit to keeping it in the next Conservative manifesto.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK unemployment has risen, as more people lost their jobs over the summer.

The latest labour market report, just released, shows that UK unemployment rose by 159,000 in the last quarter, taking the jobless total up to 1.464m.

The increase in unemployment was largely driven by people unemployed for up to 12 months.

That lifted the jobless rate to 4.3% in the May-July quarter, up from 4.2% a month ago, and 3.8% in the previous quarter.

Employment fell, due to a drop in full-time self-employed workers, pulling the employment rate down to 75.5% in May to July 2023, 0.5 percentage points lower than February to April 2023.

But there’s better news on pay this morning – total pay, including bonuses, rose by 8.5% per year in the May-July quarter, helped by one-off bonus payments to NHS and Civil Service workers this summer.

That could be significant for millions of pensioners, as this earnings figure is used to set the rise in the state pension the following April.

Regular pay (which excludes bonuses) grew by 7.8%, the same as last month – and the highest since comparable records began in 2001.

CPI inflation dropped to 6.8% in July, so this shows that wages are rising faster than prices again, after a long squeeze due to the surge in inflation last year.

Excellent news for households, but it might add to the pressure on the Bank of England to keep raising interest rates to fight inflationary pressures….

Also coming up today

Today is the last day of trading at 24 Wilko stores across the UK, after the retail chain fell into administration.

Stores including those in Aldershot, Cardiff, Falmouth, Liverpool and Stafford are among those shutting today, with a further 28 closing on Thursday.

Yesterday, unions reported that all Wilko’s 400-plus stores are to close with the loss of more than 12,000 jobs, after talks with potential buyers failed to reach a rescue deal.

We’ll find out this morning if grocery inflation eased in the last few weeks, when Kantar releases its latest data on the supermarket sector.

The agenda

• 7am BST: UK labour market report

• 8am BST: Kantar releases grocery price inflation report

• 9am BST: Opec’s monthly oil market report

• 10.15am BST: UK Treasury committee hold hearing with Sarah Breeden, deputy governor of financial stability at the Bank of England.