Jobless rate unexpectedly rises to 5% with businesses squeezed by war in Middle East; economists say this makes June interest rate hike less likely
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said:
These figures signal a growing distress within the UK’s labour market as soaring labour costs and the fallout from the Iran war drive more businesses to reduce recruitment and limit pay awards.
The continued fall in job vacancies is a worrying sign of the strength of the labour market as it suggests that demand for staff is deteriorating quickly amid global headwinds and the growing financial squeeze on firms.
The sharp weakening in the labour market in April may help to restrain the recent upward march in gilt yields by highlighting that, so far at least, the Iran war is prompting businesses to reduce headcounts rather than raise wage growth to compensate workers for higher inflation.
Overall, we all know that CPI inflation will rise over the next 6-12 months, possibly from 3.3% in March to between 4%-4.5%. But the weakening in the labour market suggests that the burst of inflation is more likely to be short-lived than longer-lasting and means the Bank of England may not need to raise interest rates much, if at all.
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