New figures from the Office for National Statistics are stoking fear that despite a low unemployment rate, the UK economy is slowing down and may be headed for a recession (as if workers needed yet another reason to be stressed!).
According to the ONS, between July and September 2019 the total number of people in work fell by 58,000, to a total of 32.75 million. This represents the largest quarterly decline since May 2015, when employment fell by 65,000. The 58,000 drop in employment was fueled by a record number of women (93,000) and part-time workers (164,000) leaving the labour force, but was offset by an increase in full-time workers (106,000).
Other developments in the labour market for the period between July and September include:
- The UK employment rate was estimated at 76 percent, which was 0.5 higher than the same period in 2018, and 0.1 percent lower than between April and June 2019.
- The UK unemployment rate was estimated at 3.8 percent, which was 0.2 lower than the same period in 2018, and 0.1 percent lower than between April and June 2019.
- The UK economic inactivity rate was estimated at 20.8 percent, which was 0.3 percent lower than the same period in 2018, and 0.1 percent lower than between April and June 2019.
The 58,000 plunge in employment has also sparked speculation that the Bank of England may go ahead with interest rate cuts. For those whose school macroeconomics is a little rusty (or has been happily forgotten), a rate cut would benefit consumers who want to borrow money to make a purchase, or who are carrying a variable rate debt (typically a home mortgage). It would also make it cheaper for businesses to borrow money to make capital investments (e.g. purchase new equipment, open new locations, complete interior office design projects, etc.), which theoretically would increase employment.
However, lowering interest rates isn’t all good news. All else being equal, it would weaken the GBP relative to other currencies, which would make operations more expensive for businesses that import goods or raw materials. An influx of “cheap money” could also lead to inflation, which means that the purchasing power of money erodes (and typically, wages for most people do not rise high or fast enough to compensate). The UK inflation rate fell to 1.5 percent year-on-year in October 2019, which is the lowest rate since November 2016. The Bank of England’s inflation target remains at 2 percent, with the aim of keeping the annual rate of consumer price inflation (CPI) within 1 percent of this target.