Employment indicators in the UK, including new jobs, unemployment, wages and demand for work, remained stable in June. The data contrasts with growing signs that the economy’s performance is deteriorating amid rising inflation and tightening monetary policy. However, the labor market as a whole has been slow to catch on to broader trends. So the June numbers still largely reflect the strong momentum that preceded Russia’s invasion of Ukraine and the fact that, despite the big shock, the UK economy has remained in good shape until recently. Looking to the second half of this year, we expect a marked deterioration in labor demand, leading to a modest increase in the unemployment rate. In particular, with regard to unemployment, it remained unchanged at 3.8% in June, coinciding with a low level of 3.8% in November 2019.

On a quarterly basis, employment increased by 160,000 in June after a steady rise of 296,000 in May. The number of vacancies, which is one indicator of labor demand, remained elevated at 1.27 million in the April-June quarter.

Unemployment remained unchanged at 3.8% in June, while private sector wages rose by 5.4%.

This number is almost equal to the number of workers registered as unemployed and well above the pre-pandemic record of 863,000 job openings at the end of 2018. As for the growth of nominal wages (including bonuses), it slowed down to 5.1% year on year. in June from 6.4% in May, while wage growth (excluding bonuses) accelerated to 4.7% from 4.4%. Wage growth in the private sector strengthened to 5.4% from 5.1%. Unfortunately, due to even higher inflation, Statistics UK estimates that real total wages fell by 2.5% year on year between April and June. Finally, while the significant wage growth in 2021 has been attributed to unusually high premiums, the recent pickup in private sector wage growth appears to largely reflect a recovery in wages. This may serve as an early signal that heightened inflationary expectations are becoming more entrenched and therefore give the Bank of England another reason to tighten policy on inflationary pressures.

* Economist at Berenberg Bank.