Unemployment fell to pre-pandemic levels at the start of the year, with record job vacancies leading to warnings of potential staff shortages.
The jobless rate fell from 4.1 per cent to 3.9 per cent in the three months to January, according to the Office for National Statistics, beating estimates of 4 per cent.
Grant Fitzner, chief economist of the statistics office, said that demand for workers “remains strong”, with vacancies hitting a record of 1.31 million last month. Total employment, based on payroll numbers, rose by 275,000 in February to a record of 29.7 million.
The tightening labour market has led to expectations that workers will demand pay rises if companies are struggling to hire employees and keep hold of staff. The “quit rate” of employees leaving their jobs is at the highest on record, according to Deutsche Bank.
However, pay packets are not yet in line with consumer prices inflation, which reached a 30-year high of 5.5 per cent in January. The statistics office said that when adjusted for inflation, earnings grew by only 0.1 per cent at the start of the year. The National Institute for Economic Research think tank estimates that peoples’ pay after inflation remains 1 per cent lower compared with the same time last year.
“Developments in Ukraine are expected to further boost households’ energy bills and workers should expect an even tighter squeeze on their real income,” Kemar Whyte, senior economist at the institute, said.
The unemployment rate is approaching the low of 3.8 per cent hit before the pandemic in late 2019, the best jobless figure since 1974, when the economy was last hit by an oil shock and inflationary spiral.
The “stagflation” of the 1970s led to rising wages as unionised workers demanded higher pay to keep in line with double-digit inflation.
The official statistics show that average earnings, including bonuses, rose by 4.8 per cent — better than expected — compared with an estimate of 4.6 per cent in the three months to January as many people receive one-off bonus payments at the start of the year. Earnings with bonuses stripped out rose by 3.8 per cent.
“Because bonuses have continued at high levels for some workers, total earnings growth just kept ahead of rising prices over the past year, though regular pay has dropped again in real terms,” Fitzner said.
The total employment rate remains below its pre-pandemic level, rising slightly by 0.1 per cent to 75.6 per cent in the three months to January. The ONS said that the number of people actively looking for work or falling out of the job market also rose.
“Staff shortages could be a sign of a lasting problem” Yael Selfin, chief economist at KPMG, the professional services group, said. “We are starting to see the limits to which vacancies can be filled by those re-entering the labour market.”
The Bank of England is expected to respond to surging inflation by raising interest rates for the third time in fourth months on tomorrow, taking the Bank rate to a pre-pandemic level of 0.75 per cent. Tighter monetary policy is designed to stave off further inflation by raising the cost of borrowing and reducing demand.
Economists at Deutsche Bank expect the central bank to continue increasing rates in May, June and August in the face of prolonged inflation driven by the war in Ukraine, lifting the Bank rate to 1.5 per cent.