“The growing wage pressures fit the larger story of rising inflation in the economy,” wrote Kallum Pickering, economist at Berenberg, in a note. This strengthens the case for the Bank of England to raise interest rates next year, he added.
Overall, the UK labor market is recovering strongly from the pandemic. The number of employees increased by 182,000 in July, up 0.6% from June. Compared to February 2020, the number of salaried employees is down 201,000. At worst, in November, there were nearly 969,000 fewer employees than before the pandemic.
In the second quarter, the unemployment rate slipped to 4.7% from 4.9% in the previous quarter. There has been a record flow of around 300,000 people from unemployment to employment. The rate of economic inactivity also fell, as more people were classified as unemployed because they had resumed looking for work.
At the end of the second quarter, around two million people were still on leave in Britain, but this program will end next month. Even though vacancies remain high, policymakers and economists are closely watching whether there will be a noticeable increase in the unemployment rate after the leave program ends or whether these workers are able to find employment.
The Bank of England does not forecast a further increase in the unemployment rate this year, but expects it to be around 4.25% in 2023. It was 3.8% before the pandemic.