UK workforce ‘sicker and poorer’ as economic inactivity and unemployment rises; China’s growth beats forecasts – business live

Alarm over rise in economic inactivity

Labour market experts are alarmed by the continued rise in the number of Britons who are economically inactive, as shown in today’s employment report.

The UK economic inactivity rate for those aged 16 to 64 years has risen to 22.2% in December-February, with 9.404 million people neither in work (employed) or looking for work (unemployed).

That’s 150,000 more than in the previous quarter, and 275,000 more than a year ago, the Office for National Statistics reports.

The ONS says the increase in the last quarter is mainly due to a rise in students and those inactive because of long-term sickness.

Photograph: ONS

There are record numbers out of work due to long-term ill health, points out Tony Wilson, director at the Institute for Employment Studies.

Wilson explains:

“Today’s jobs figures are surprisingly poor, with a steep fall in employment and a sharp rise in those out of work, including an unexpected rise in unemployment.

However, most concerning is the rise in ‘economic inactivity’, which is the measure of those not in work but not looking for work, which is even higher now than it was in the depths of the pandemic. Overall there are nearly a million fewer people in the labour force than there were four years ago, and over a million fewer in work than there would have been if pre-crisis trends had continued.

The trouble is that not enough people out of work are looking for jobs, rather than that people who are looking for jobs can’t find them. In other words, the weak labour market is holding back economic growth, not the other way round.

Latest figures out this morning from @ONS don't provide much evidence that the government's drive to reduce 'economic inactivity' is going especially well: pic.twitter.com/6GzqEErHDL

— Steve Webb (@stevewebb1) April 16, 2024

Ben Harrison, director of the Work Foundation at Lancaster University, says the UK workforce is “sicker and poorer as economic inactivity has risen further to 9.4 million, and unemployment has risen to 4.2%”.

Harrison explains:

“A record 2.82 million people are economically inactive due to long-term sickness, and the UK is facing unresolved structural issues with labour market participation, as employers aim to fill 916,000 vacancies.

The UK continues to be an international outlier with participation rates below pre-Covid levels. Since December 2019 to February 2020, 717,000 people have become economically inactive due to ill health and the tide is not turning.

The Institute of Directors is also concerned. Alexandra Hall-Chen, principal policy advisor for employment at the IoD, says:

The rise in economic inactivity over both the quarter and the year is a worrying development for businesses, given its potential to exacerbate persistent skills and labour shortages in the UK.

The ongoing expansion of government-funded childcare is a welcome step to increasing labour market participation, but more action from government is urgently needed to increase domestic labour supply.”

Key events

Tony Wilson, director at the Institute for Employment Studies, has now posted a detailed thread on today’s jobs data.

It shows how long-term ill health is driving economic inactivity higher, and how there’s been a worrying rise in long-term unemployment:

UK recruiters see challenging conditions

Financial results from two UK recruitment firms today show that the jobs market has cooled, at home and abroad.

Hays reported a 16% drop in fees earned by filling vacancies in the United Kingdom & Ireland (UK&I) in the first quarter of this year.

Overseas jobs market also cooled, dragging Hays’ total like-for-like fees down by 14%

Dirk Hahn, Hays chief executive, explains:

“Market conditions remained challenging through the quarter. In Australia and UK&I, Temp activity was stable through Q3, although volumes in each are down c.15% YoY, and slightly below pre-Christmas levels.

Rival recruiter Robert Walters reported a 20% drop in net fees in the UK in Q1, saying that trading conditions remain challenging, although fee income rose sequentially in London for the first time in five quarters.

Across the group, gross profits fell 21%.

Toby Fowlston, chief executive, commented:

“In-line with the latter part of 2023, overall trading conditions remained challenging during the first quarter of 2024.

Although certain macro-economic indicators, such as inflation, continue to moderate in some markets, the general environment remains one where client and candidate confidence is at low levels, which we expect to continue to be a headwind to fee income growth in the near-term.

Full story: UK unemployment rate leaps to 4.2%

The number of people out of work rose by more than expected in February, raising concerns that employers are beginning to lay off staff in response to high interest rates.

The Office for National Statistics said the unemployment rate increased to 4.2% in February from 3.9%, well above the 4% expected by City economists.

Analysts said the cooling effects of higher interest rates were leading to more redundancies and discouraging employers from hiring staff.

Despite rising unemployment, regular pay growth excluding bonuses was stronger than expected at 6% in the three months to February, underlining the dilemma facing the Bank of England over when to start cutting interest rates. Pay growth of 6% was down from 6.1%, but stronger than the 5.8% expected by economists polled by Reuters. Total pay, which includes bonuses, was unchanged at 5.6%.

More here.

The drop in the UK’s employment rate to 74.5%, down from 75% in the previous quarter, means the jobs recovery is going backwards, warns Stephen Evans, chief executive at Learning and Work Institute.

Evans points out that Britain is lagging behind fellow G7 nations:

“The labour market continues to ease with falls in employment and rises in unemployment and economic inactivity. Most troubling is that the UK is the only G7 country where employment remains lower than pre-pandemic levels. This is driven by rises in economic inactivity, with 2.8 million people economically inactive due to long-term sickness, a record high.

“The answers are to get the economy growing and offer more and better help to find work to people who are economically inactive. The number of people economically inactive due to long-term sickness who get help to find work each year is only half the number who want a job. That needs to change.”

Shares in fashion retailer Superdry have been briefly halted this morning after plunging over 25%, as it announced plans for a sweeping restructuring plan and to delist from the stock market.

My colleague Julia Kollewe explains:

Superdry is to embark on a restructuring plan including rent reductions in stores and a fundraising, backed by its boss and co-founder Julian Dunkerton, and will delist from the London Stock Exchange.

The struggling British fashion retailer announced the plans a fortnight after Dunkerton decided against making a takeover offer with partners after a two-month pursuit. Superdry hopes the measures will return the business to a “more stable footing”.

The three-year restructuring plan, a formal procedure under the Companies Act for companies in financial difficulties, is expected to result in rent reductions on 39 UK sites, the extension of the maturity date of loans, and “material” cash savings from rent and business rate changes.

The Resolution Foundation have dug into today’s UK jobs data, and found that economic inactivity has risen to its highest level since 2015 among working age people.

Resolution explain:

This rise is broad based – the inactivity rate is up (and the employment rate down) for all age groups except those aged 35-49, and in all English regions outside London and the South East.

The number of people inactive because of ill health has hit a new record high of 2.8 million, while there has been a worrying increase in the number of people who don’t want a job – the number of inactive who want a job is at its lowest since Mar-May 2022.

TUC: People are too sick to work

One cause of Britain’s long-term sickness crisis is the long waiting lists for treatment on the NHS.

Data last week showed that the waiting list for routine hospital treatment in England has fallen for the fifth month in a row, but remained near a record high, with 7.54 million treatments waiting to be carried out at the end of February.

TUC General Secretary Paul Nowak says today:

“NHS waiting lists are near record levels. But instead of taking responsibility, the Tories are attacking people who are too sick to work. The nasty party is back!

European stock markets take a tumble

The London stock market has made a bad start to the morning.

The FTSE 100 index of blue-chip shares has dropped by around 1.35%, or 105 points, to 7860 – its lowest level since 21 March.

Nearly every stock on the index is in the red, with miners and banks among the fallers.

The City is catching up with losses on Wall Street last night, where stocks fell again amid continuing angst that the US Federal Reserve may not cut interest rates as soon as hoped.

Shares across Europe are also in the red, with France’s CAC index down 1.8% at the open and Spain’s IBEX off 1.2%.

China’s faster-than-expected growth in Q1 isn’t cheering investors; perhaps because data for March was weaker than expected….

Victoria Scholar, head of investment at interactive investor, says,

“Risk-off sentiment is gripping European markets today - the DAX, CAC and FTSE 100 have shed more than 1% each as negative momentum from yesterday’s sell-off on Wall Street carries forward to this morning’s price action. The strength of the US dollar is proving problematic for risk appetite as hopes fade of a near-term rate cut stateside. San Francisco Fed President Mary Daly said there’s ‘no urgency’ to cut US interest rates.

There are also worries about rising geopolitical tensions in the Middle East with concerns about how Israel plans to respond to Iran’s attack over the weekend.

In the UK, almost all stocks are in the red today on the FTSE 100, caught up in today’s sell-off. B&M European Value Retail has plunged to the bottom of the blue chip index, giving back yesterday’s gains, despite forecasting full year profit at the top end of guidance.

Secretary of State for Work and Pensions, Mel Stride MP, insists the government is taking steps to tackle the UK’s rise in economic inactivity (see previous post).

He says:

“We’ve seen long term sickness related inactivity rise since the pandemic, that’s why we introduced our £2.5bn Back to Work Plan to transform lives and grow the economy.

“Our welfare reforms will cut the number of people due to be placed in the highest tier of incapacity benefits by over 370,000. As millions are benefiting from this month’s huge boost to the National Minimum Wage, it is work, not welfare, that delivers the best financial security for British households.”

Alarm over rise in economic inactivity

Labour market experts are alarmed by the continued rise in the number of Britons who are economically inactive, as shown in today’s employment report.

The UK economic inactivity rate for those aged 16 to 64 years has risen to 22.2% in December-February, with 9.404 million people neither in work (employed) or looking for work (unemployed).

That’s 150,000 more than in the previous quarter, and 275,000 more than a year ago, the Office for National Statistics reports.

The ONS says the increase in the last quarter is mainly due to a rise in students and those inactive because of long-term sickness.

There are record numbers out of work due to long-term ill health, points out Tony Wilson, director at the Institute for Employment Studies.

Wilson explains:

“Today’s jobs figures are surprisingly poor, with a steep fall in employment and a sharp rise in those out of work, including an unexpected rise in unemployment.

However, most concerning is the rise in ‘economic inactivity’, which is the measure of those not in work but not looking for work, which is even higher now than it was in the depths of the pandemic. Overall there are nearly a million fewer people in the labour force than there were four years ago, and over a million fewer in work than there would have been if pre-crisis trends had continued.

The trouble is that not enough people out of work are looking for jobs, rather than that people who are looking for jobs can’t find them. In other words, the weak labour market is holding back economic growth, not the other way round.

Ben Harrison, director of the Work Foundation at Lancaster University, says the UK workforce is “sicker and poorer as economic inactivity has risen further to 9.4 million, and unemployment has risen to 4.2%”.

Harrison explains:

“A record 2.82 million people are economically inactive due to long-term sickness, and the UK is facing unresolved structural issues with labour market participation, as employers aim to fill 916,000 vacancies.

The UK continues to be an international outlier with participation rates below pre-Covid levels. Since December 2019 to February 2020, 717,000 people have become economically inactive due to ill health and the tide is not turning.

The Institute of Directors is also concerned. Alexandra Hall-Chen, principal policy advisor for employment at the IoD, says:

The rise in economic inactivity over both the quarter and the year is a worrying development for businesses, given its potential to exacerbate persistent skills and labour shortages in the UK.

The ongoing expansion of government-funded childcare is a welcome step to increasing labour market participation, but more action from government is urgently needed to increase domestic labour supply.”

The easing pressure in the labour market keeps the Bank of England on track for a summer cut to interest rates, says Yael Selfin, chief economist at KPMG UK.

“The slight easing in regular pay growth will bring some comfort for the Bank of England which has relied on the pay data as a key gauge of domestic inflationary pressure.

Moreover, the rise in unemployment rate paints a picture of a less tight labour market. The exact timing of the first rate cut will be a hot debate for the MPC in the coming months.

Real wage growth hits 2.5 year high

UK wage growth has cooled, today’s labour market report shows, but falling inflation means that real pay is actually accelerating.

Regular pay (excluding bonuses) rose by 6.0% per year in December-February, a slowdown on the 6.1% recorded in November-January.

Growth in total pay (which includes bonuses) was unchanged at 5.6%.

But once you account for CPI inflation, real wages are rising at the fastest pace in two and a half years.

Real total pay (adjusted for CPI) was 1.8%, while real regular pay grew by 2.1% – both were last higher in July to September 2021.

UK firms have cut back on their vacancies – another sign that demand for labour is weakening.

There were 916,000 vacancies across the economy in January to March 2024, the ONS reports, which is a drop of 13,000 - or 1.4% – compared with October to December 2023.

Jake Finney, economist at PwC UK, says:

“The latest data suggests the UK labour market continues to cool, albeit at a gradual pace considering the strain the economy has been under over the past few years.

The unemployment-to-vacancies ratio, a key measure for the Bank of England, ticked up to 1.6 in the three months to February 2024 as unemployment increased and vacancies fell further.

UK unemployment rate jumps to 4.2%

Newsflash: Britain’s unemployment rate has risen to 4.2%, as the number of workers in payrolled jobs falls and more people leave the jobs market.

The latest healthcheck on the UK’s labour market shows that the unemployment total rose by 85,000 in the December-February quarter, to 1.44 million.

That takes the jobless rate to its highest level since last summer, just before the UK began sliding into a shallow recession.

The number of people in employment fell by 156,000 in the quarter to 32.98 million, as firms cut back on their workforce.

But not all those people joined the ranks of the unemployed; another 150,000 people were classed as ‘economically inactive’ in the quarter, taking the number neither in work nor looking for a job to 9.404 million.

And in March, the number of payrolled employees shrank by 67,000, to 30.3 million.

ONS director of economic statistics Liz McKeown says there are “tentative signs that the jobs market is beginning to cool”, given the drop in headline employment rate and the fall in payrolls.

McKeown adds:

“However, we would recommend caution when looking at the size of the fall in headline employment, as previously highlighted lower sample sizes mean there is greater volatility in quarterly changes than was the case.”

Introduction: China's GDP beats forecasts, but there are signs of weakness too

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

China’s economy has beaten expectations for growth in the first quarter of the year, but there are already signs that growth may be slowing.

China’s gross domestic product. grew by 5.3% in January-March compared to a year ago, data released today by the National Bureau of Statistics showed.

That beat foreasts of 4.6% increase, and shows a slight rise on the 5.2% growth recorded in the previous quarter.

China’s National Bureau of Statistics says the country’s economy had continued to rebound in Q1 2024, but also struck a cautious note:

Generally speaking, in the first quarter, the national economy made a good start with positive factors amassing, laying a strong foundation for achieving the annual development targets.

However, we should be aware that the external environment is becoming more complex, severe and uncertain, and the foundation for stable and sound economic growth is not solid yet.

However, a flurry of economic reports from March were weaker than expected, implying that demand softened at the end of the quarter.

Retail sales figures for March only rose by 3.1%, missing forecasts of 4.5% growth, while industrial production grew by 4.5%, failed to meet market expectations of 5.4% growth.

Stephen Innes, managing partner of SPI Asset Management, says:

Amidst mounting concerns over the resilience of the Chinese economy, Tuesday’s data releases from Beijing delivered a mixed bag of results, leaving investors grappling with a multitude of uncertainties.

On the one hand, China’s headline Q1 GDP figure of 5.3% exceeded expectations, suggesting a stronger-than-anticipated start to the year and providing a glimmer of hope for meeting annual growth targets.

However, the optimism surrounding GDP was tempered by lacklustre performances in other key economic indicators.

Asia-Pacific markets have fallen into the red, with China’s Shenzhen Composite index down 2.3%. Hong Kong’s Hang Seng has lost 1.5%, and Australia’s S&P/ASX 200 is down 1.7%.

Concerns over tensions in the Middle East, along with anxiety over how soon central banks will start cutting interest rates, are dampening risk appetite among investors.

The agenda

7am BST: UK unemployment report

10am BST: ZEW index of eurozone economic sentiment

10.15am BST: Treasury Committee hearing with Clare Lombardelli, newly appointed deputy governor at the Bank of England.

1.30pm BST: US building permits and housing starts data for March

2pm BST: IMF releases its latest World Economic Outlook

3.15pm BST: IMF releases its latest Global Financial Stability Report

Explore more on these topics