British employment cools as companies let more staff go

What’s bad for prime minister Rishi Sunak will be greeted with relief at the Bank of England, which is seeking to slow demand in the economy

With the economy in recession in the second half of last year and job opportunities drying up, Conservative MPs are pressing for measures that make voters more confident in the prospects for the economy and their finances.

Britain’s jobs market, which fuelled inflationary pay raises immediately after the pandemic, is cooling sharply, with the first increase in unemployment since July.

Official data showed all indicators in the labour market were now pointing down, easing upward pressure on wages and reducing the number of vacancies. Companies also let more staff go, doubling the redundancy rate since October. 

Unemployment rose to 3.9% in the three months through January, an unexpected increase from 3.8% in the quarter to December, Britain's Office for National Statistics said. 

The figures indicate a difficult backdrop for prime minister Rishi Sunak’s government, which intends to seek reelection later this year. 

With the economy in recession in the second half of last year and job opportunities drying up, Conservative MPs are pressing for measures that make voters more confident in the prospects for the economy and their finances.

“We expect the labour market to weaken in the coming months, which should reduce momentum in wage growth and raise the prospect of interest rate cuts from the summer onwards,” said KPMG UK chief economist Yael Selfin.

What’s bad for Mr Sunak will be greeted with relief at the Bank of England, which is seeking to slow demand in the economy and take the heat out of upward pressure on prices. Investors saw the data as a sign policymakers could soon lower interest rates for the first time since the pandemic. 

Traders stepped up bets on lower borrowing costs, fully pricing in four quarter-point reductions in the key rate over the next year. The Bank of England's MPC is expected to make no change at its next meeting on March 21, holding the key rate at a 16-year high of 5.25%.

“These data will make the debate on the MPC more balanced,” said Tomasz Wieladek, chief European economist at T Rowe Price. 

“There is now evidence that the labour market data have stopped going in the wrong direction. The labour market has been clearly tightening until this print this morning.” 

Bank of England rate-setters are watching wage settlements for April closely, since many workers receive their latest pay rise then. 

“The faster-than-expected fall in private sector wage growth supports our view that the Bank of England will ease policy this year and probably by more than markets expect," said economists Ana Andrade and Dan Hanson at Bloomberg Economics. 

"We also think that if inflation remains on track to drop below 2% in the spring, there’s a case for rate cuts to start in May. Still, we recognise that recent communication has suggested the Bank of England is in no hurry to ease policy, which could mean the first move down comes a little later, in the summer," they said. 

Britain's Office of National Statistics, or ONS, urged caution in using the figures on employment, unemployment and inactivity after problems in the labour force survey that feeds the figures. 

The survey was suspended in October due to falling response rates and only reinstated last month when the ONS published re-weighted numbers based on new population estimates. With work to improve the data ongoing, economists are putting less weight on their reliability. 

• Bloomberg