UK labour market can’t hold out much longer against impact of stagflation
Britain’s economy is suffering from a textbook case of stagflation, and the symptoms are clear from the latest labour market trends. It looks like a complex picture. The number of people looking for work rose while the number of job vacancies fell. Hours worked in the economy were down while days lost through strikes in 2022 were the highest annually since 1989.
In fact, the diagnosis is straightforward. There was zero growth in the final three months of 2022 while the annual inflation stood at above 10%. Attempts by the Bank of England to reduce inflationary pressure through higher interest rates are feeding into lower levels of activity – but only slowly. There has been no sudden collapse of the sort seen during the global financial crisis of 2008.
There are a few complications, as shown by the latest figures from the Office for National Statistics. The legacy of the pandemic has affected the supply of labour, largely because workers in the older age groups have given up work, either through choice or due to long-term sickness. Although the number of vacancies has fallen since last summer, it is still well above pre-pandemic levels.
Businesses and employees are responding to these trends in predictable ways. Firms are looking past the current economic slowdown and wondering whether they will be able to replace workers in the future if they make them redundant now. Mostly, they are hoarding staff, taking on part-time rather than full-time employees, and paying their workers more. Annual growth in regular pay – excluding bonuses – stood at 6.7% in the three months to December. In the private sector, earnings growth was 7.3%.
Labour shortages have made it easier for some groups of workers to secure higher pay deals. Even so,
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