Britain's unemployment fell to its lowest level since 1974 at 3.6 per cent in the three months to July, but wages fell further behind spiralling inflation, official figures showed on Tuesday.
The number of people on payrolls for August increased by 71,000 on July figures to a record 29.7 million, the Office for National Statistics said.
The economic inactivity rate — measuring the share of the population who are not in work and not looking for work — increased by 0.4 percentage points on the quarter to 21.7 per cent. This was led by those classified as long-term sick and students and could add to the inflation headache for the Bank of England.
The BoE is worried about increasing inactivity in the labour market as it could help to fuel inflation pressures due to a lack of candidates to fill jobs. The rate currently stands at a 40-year high of 10.1 per cent, after energy and food bills pushed up living costs, and has been forecast to reach as much as 13 per cent. However, new Prime Minister Liz Truss last week pledged to introduce measures to halve the rate. The government’s move to freeze energy bills at £2,500 ($2,931) is set to rein in the peak in inflation, but wages are still unlikely to keep pace with rising costs.
The BoE raised borrowing costs by the most since 1995 last month. It said it remained ready to act forcefully if that pressure became more persistent. It is expected to raise interest rates again on September 22.
The number of job vacancies in June to August was 1,266,000, a decrease of 34,000 from the previous quarter and the largest quarterly fall since June to August 2020.
"It's not often that you see the unemployment rate fall to the lowest in almost 50 years and aren't overjoyed, but that will certainly be the feeling at the Bank of England right now," said Craig Erlam, a senior market analyst at Oanda.
"The decline in the rate was driven by a decline in the labour force, while employment rose by only 40,000; far less than expected. What's more, wage growth accelerated faster than expected, hitting 5.5 per cent including bonuses in the three months to July compared with the same period last year."
Labour market dynamics and faster wage growth increase the odds of a 75 basis point hike given high inflation rate over the medium term as a result of the new cap on energy bills, Mr Erlam added.
Konstantinos Venetis, senior economist at TS Lombard, said: “Labour participation remains well below pre-pandemic rates. Coupled with Brexit restrictions on foreign workers, this translates to constrained labour supply that is pushing the unemployment rate down. The UK job market remains too hot for the BoE as core CPI remains under upward pressure.”
The ONS said regular pay, excluding bonuses, grew by 5.2 per cent over the three months to July.
But, with Consumer Prices Index inflation taken into account, real pay tumbled by 3.9 per cent year-on-year, the ONS said.
The ONS added that total pay, including bonuses, rose by 5.5 per cent for the three-month period, falling by 3.6 per cent with inflation taken into account.
The jobs data was largely in line with analyst estimates and continued to confirm that the UK jobs market remains tight, said Lukman Otunuga, a senior research analyst at FXTM.
"Importantly, wage growth was buoyant pointing to more aggressive tightening by the Bank of England. Money markets are currently predicting a 73 per cent probability of a 75-basis point rate hike by the bank at next week’s rearranged meeting," he said.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the jobs figures were “grim”, showing “the recovery in employment has petered out”.
James Smith, at ING, added: “The number of workers classified as long-term sick has jumped dramatically in the past couple of months, and that’s one reason why firms are still struggling to source the staff they need.
“While worker demand has cooled, Bank of England hawks will be worried that these shortages will continue to push up wage growth.”
He added this would reinforce the case for more hefty interest rate rises.
“Persistent worker supply constraints, coupled with so far only modest signs of reduced hiring demand, will provide further ammunition for Bank of England hawks to push ahead with further tightening,” he said.
James Reed, chairman of recruitment company Reed, told the BBC: “The jobs boom that began six months after the pandemic is coming to an end, but there are still large numbers of vacancies and people advertising a large number of jobs.”
He said his company’s data did not suggest an imminent jobs slump. “Employers are still struggling to recruit,” he added.
He said the wage disparity between private and public sector roles would make it harder to recruit. “We’re hearing a lot of people are looking to change jobs because they’re not being properly paid. It could lead to an exodus. Wages are struggling to keep up with inflation.”
Alice Haine, personal finance analyst at online investment platform Bestinvest, said: “Employee spending power is now severely compromised and with inflation expected to edge higher on Wednesday, when the ONS releases the latest reading, how far wages can go in the daily lives of workers will be tested once again.
“While the labour market appears robust overall, the cost of living remains a priority for many jobseekers as they hunt for better paid roles to offset the rises in food and energy prices.
“However, fears of a wage-price spiral might ease off if the chatter around an impending recession at the end of the year rings true. GDP might have risen slightly in July, but that did little to offset the flattening economic growth in the three months to July as the fallout from the war in Ukraine and rising borrowing costs took its toll on the economy.”
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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- Kirill Shamalov, Russia's youngest billionaire and previously married to Putin's daughter Katarina
- Petr Fradkov, head of recently sanctioned Promsvyazbank and son of former head of Russian Foreign Intelligence, the FSB.
- Denis Bortnikov, Deputy President of Russia's largest bank VTB. He is the son of Alexander Bortnikov, head of the FSB which was responsible for the poisoning of political activist Alexey Navalny in August 2020 with banned chemical agent novichok.
- Yury Slyusar, director of United Aircraft Corporation, a major aircraft manufacturer for the Russian military.
- Elena Aleksandrovna Georgieva, chair of the board of Novikombank, a state-owned defence conglomerate.
UAE currency: the story behind the money in your pockets
Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
