U.K. labor market remains tight, jobless rate falls to 3.8 pct in three months to September

The U.K. labor market data released today gave further evidence that the ongoing uncertainty around the Brexit, along with signs of a deceleration in the global economy, were affecting the hiring activity in the U.K. The level of employment dropped by 58k in the three months to September, albeit the fall was much smaller than market expectations for a larger fall but in keeping with the wide deceleration seen in hiring activity in recent month.

For some time, a few metrics had been indicating towards some of the tightness of the U.K. labor unwinding. Survey measures of hiring activity had fallen, especially the employment components of the PMIs, while the number of unfilled job vacancies had also eased in recent months. This trend continued in the latest report with the number of vacancies falling to a fresh two-year low. In spite of the fall in employment, however, the level of unemployment also dropped in the latest report because of a rise in the number of people choosing not to participate in the U.K. labor market.

The rise in economic inactivity primarily reflect a rise in the number of people choosing to become students and those deciding that they did not want a job. Therefore, the level of unemployment dropped by 23k in the latest report, taking the unemployment rate to 3.8 percent.

Still, it is worth noting that the drop in employment, contrasts slightly with the stronger trends seen in the official measures of U.K. economic activity. The U.K. economy continues to display resilience in the face of ongoing uncertainty over the longer-term outlook. Therefore, it is more likely that the moderation in labor market activity reflects companies taking a more cautious approach to hiring in the current environment rather than actively looking to reduce their headcount.

“Unsurprisingly, therefore, the prospects for the UK labour market continue to hinge on the outcome of the Brexit negotiations, with an orderly outcome likely to see the labour market regain some momentum. While the number of vacancies moved further away from the all-time high set earlier this year, the overall level still remains elevated, consistent with some pent-up demand for labour”, added Lloyds Bank.