It’s been some time since we saw a weakness in the UK job market. But this week we received news from the Office for National Statistics (ONS) that unemployment rose slightly to 4.2% (from 4%) in the three months to August 2023. So, what’s happening to the UK economy?
The ONS explained that the figures they presented should be considered “experimental” because they were derived from benefit claims and tax records for the first time. In the past, these figures would have been obtained from a survey.
As a business, you would have come across such surveys in the past. However, in recent years the response rates had fallen making the finding unreliable. The OBR therefore had no option but to try a different way to get the labour market data which is often used to predict what’s happening to the UK economy.
What do the figures suggest?
There is a growing belief among policymakers that the job market figures released on 23 October 2023, are unreliable, leaving the actual state of the UK economy unknown.
The lack of detailed information in the ONS report has made it difficult for experts to predict where the economy is headed. The report failed to provide information such as the number of self-employed or part-time workers, and there was no breakdown of sectors.
This unreliable data will make it challenging for the Bank of England to decide on the interest rate, especially as their next meeting is scheduled for 2nd November.
If you want to see what is happening in your area with the labour market then have a look here
Will UK inflation coming down?
A slowdown in hiring could lead to a decrease in wage growth, but will that help control the high inflation rate that has persisted for some time?
To answer this question, we need to first understand what’s behind the high inflation. The ONS tracks the prices of hundreds of common everyday items, updating the basket of goods each month and comparing the price of items in the basket to the price in the previous year.
The latest rate of inflation in the UK was 6.7% in September, which is one of the highest among G7 economies. According to the Resolution Foundation, this is partly due to the UK’s slower pace of passing price reductions on to consumers.
The primary drivers of inflation in the UK are food and energy prices. Food prices have risen by 28.4% over the last two years, which is the highest increase in 13 years, as reported by the House of Commons.
Energy prices have also contributed to the rise in inflation, especially as a result of the Russia-Ukraine war which led to a sharp increase in gas prices, subsequently affecting electricity prices.
Currently, there are fears of another war in the Middle East, and the potential impact it would have on oil prices.
Last month, despite the expectations, the inflation rate remained unchanged, making it difficult to predict future trends.
Among all the uncertainties the UK economy looks a bit subdued. Although the pundits are not expecting a recession, it is hard to find an economist who is optimistic about our growth prospects for the next year.
The British Chamber of commerce describes the UK economy as a fragile economy stuck in first gear
This creates an interesting background against which the Chancellor is going to deliver his Autumn Statement next month on the 22nd.
What should you be doing in your business?
As a business owner you need to ensure you have a good understanding of your financial data. It all starts with good quality bookkeeping which can give you the information you need to make the decisions.
It’s important to consider your customer loyalty and marketing strategy. If things become stagnant or difficult, it’s crucial to ramp up your marketing efforts. It’s easy to get sidetracked by immediate issues, but it’s important not to lose sight of your long-term goals.
If you’re struggling with your business and unsure of what to do, don’t hesitate to reach out for help. Making all the decisions alone can be lonely. Consider finding a like-minded partner to bounce ideas off of. Here’s how we work