Late last year and earlier this year, when MoneyWeek was saying that we’d see a strong recovery from Covid, one of the bearish counter-arguments was: “ah, but just wait until the furlough ends – then the trouble will begin.”
It was a reasonable argument. It wasn’t one I agreed with, but I could see why people were making it.
However, the latest employment data proves beyond a shadow of a doubt that it was wrong.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The good news on UK employment
The UK’s furlough scheme ended at the end of September. The furlough might have been expensive, but it did keep a great many people in their jobs and it was the only reasonable thing to do given that the government mandated a complete shutdown of the economy.
It’s a good example of where state intervention was the correct option. (To be clear, you can certainly then debate the overall merits or otherwise of lockdown – I’m just saying that if the government says “you have to shut your shop” it is then entirely unfair and not at all anything to do with free markets to say “so you must lose your job and your business”.)
Understandably, some were concerned about what would happen when furlough ended. If the economy was still in a fragile state after Covid and the rebound was just a brief bounce rather than sustained, then we could’ve seen a spike in unemployment as furlough turned into redundancies and layoffs, as employers could no longer afford to keep those jobs on.
But that hasn’t happened. Furlough has just ended. But the number of people claiming benefits fell in October while the number of employees grew. As Paul Dales of Capital Economics points out, “it looks as though only a small share of the 1.1 million people that were still on furlough” on the last day of the scheme lost their jobs.
That’s great news. Better yet – and arguably more importantly – the number of job vacancies in the market remains at a record high, even although the unemployment rate is falling fast.
In the three months to September, the unemployment rate fell from 4.5% to 4.3%. That was better than expected. And in September itself, it came in at 4%. And as Dale points out, “in the last week of September, it was 3.5%. That’s lower than before the pandemic.”
In other words, we’ve got an economy with record vacancies and unemployment back to pre-pandemic levels.
Interestingly, given all this, wage inflation actually moderated in the three months to September. In the three months to August, average earnings apparently grew by 7.2%, whereas the figure was 5.8% this time round. The Office for National Statistics also reckons that if you strip out the impact of Covid, it slowed from 4.1% to 3.4%.
I must admit, this does make me wonder just how reliable the statistics are. The ONS admits that it’s hard to adjust for these distortions and it’ll be interesting to see what happens in a year or so.
Anyway – the point is we have a booming jobs market, and we also have the lowest interest rates in history.
Presumably one of those things has to give. Soon-ish.
The next move in interest rates must surely be a bit higher
One of the most obvious implications of this report is that it makes it harder for the Bank of England to delay again on raising interest rates at its next meeting in December.
Unless the next employment report after this one (due in the middle of next month) takes a turn for the truly awful, it does seem likely that the Bank will act – if only because governor Andrew Bailey is probably still smarting from the media and market reaction to the surprise hold we got last time.
Now, this probably isn’t a particularly big deal. A rise in rates next month isn’t something that would make a big difference either to your savings rate or to your mortgage rate at this stage. We’re only talking about going from 0.1% to 0.25%.
The future direction of travel is far more important and that will remain dependent to a great extent on what happens with the recovery – and more specifically, inflation.
However, as I’ve already said countless times, the name of the game today is “financial repression”. That implies the Bank will do its best to lag behind the rate of inflation and drag its feet when it comes to raising rates.
That tactic can only work for so long, but that’s why you’ll be seeing green gilts and mandates that effectively (or explicitly) force institutions to own them rolling out in the coming months and years (or something very similar).
We’ll be discussing various aspects of all this at the MoneyWeek Wealth Summit on Thursday 25 November. Make sure you get your ticket – book here now.
-
What is bitcoin halving and what does it mean for crypto investors?Bitcoin halving is likely to take place this week, according to experts. Historically, this practice has caused the cryptocurrency to soar in value. But will this time be different?
-
British Airways revamps Avios scheme bringing down flight prices to £1With the new Avios part-payments scheme you can now bag a British Airways flight for as little as £1
-
UK wages grow at a record paceThe latest UK wages data will add pressure on the BoE to push interest rates even higher.
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growthGross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK wage growth hits a record highStubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
