Britain has reported a record increase in the number of people leaving the labor market in the three months to August, pushing the unemployment rate down to its lowest level in almost 50 years and adding to the Bank of England’s inflation headaches.
Official data shows that the number of people neither in employment nor seeking work rose by 252,000 from the three months to May, the largest increase since records began in 1971.
As a result the unemployment rate dropped to 3.5%, the lowest since 1974.
The Office for National Statistics (ONS) said the increase was driven by people classed as long-term sick hitting a record high due to the impact of the Covid-19 pandemic, as well as an increased number of people studying.
Britain’s shrinking labor market is likely to further fuel inflationary pressures, with the economy already facing severe stress due to a combination of global factors and home-grown issues such as the slump of the pound following the announcement of Prime Minister Liz Truss’s unfunded tax cuts.
Rate Hikes Will be More Aggressive Than Ever
“Things just seems to go from bad to worse for the UK at present,” said Martin Thorne, CEO at Bickley Consulting in Taiwan and originally from the UK himself. “Already licking its self-inflicted wounds from the past few weeks this latest news will only add to the pressure.”
“Rate hikes over the coming months were inevitable, but now we can expect the Bank of England to raise rates more aggressively than ever.”
The BoE has so far raised interest rates from 0.1% last December to the current level of 2.25%, but investors are betting on a full percentage-point increase next month as it moves to offset inflationary pressures from a number of fronts.
Thorne believes such a hike is a likely outcome.
“Rising living costs are also seeing wages edge higher, and a major hike appears inevitable,” he added. “A full percentage point is more likely than not in my opinion.”